Some Economists Expect Bank of Canada May Raise Interest Rates Next Week
Consumer price inflation reached 3.1 percent in September, driven largely by higher gas prices stemming from the Middle East conflict, prompting financial markets to reevaluate upcoming central bank decisions. Global News reported that some economists now expect the Bank of Canada to raise its benchmark interest rate by 25 basis points as early as next week, marking the first rate hike in more than three years.
The policy rate has remained steady at 2.25 percent since October 2025. That period of stability could end if growing inflation risks materialize.
Shifting Economic Forecasts Ahead of the October Decision
For roughly a year, the Bank of Canada has held its key interest rate unchanged. Financial markets widely anticipated an eighth consecutive hold when policymakers meet on October 28. Recent warnings from central bank officials, however, altered those expectations significantly.
Bank of Canada Governor Tiff Macklem spoke on the sidelines of International Monetary Fund meetings in Bangkok, noting that future inflation is projected to run higher than July forecasts indicated. Those earlier projections anticipated inflation cooling to approximately 2.5 percent in the second half of the year. Macklem stated that officials must determine whether inflation will return to target levels independently or if higher borrowing costs are necessary to influence its path.
Those comments prompted several major financial institutions to revise their forecasts. Scotiabank, the Bank of Montreal, RBC Dominion Securities, and Desjardins Group shifted their predictions from an anticipated hold to a quarter-point rate increase. Bloomberg data indicates that traders in the overnight swap market priced the probability of a 25-basis-point hike at 87 percent.
Middle East Instability Drives Fuel Costs and Inflation
The recent acceleration in consumer prices stems primarily from elevated fuel costs associated with the ongoing Iran war and broader Middle East instability. Statistics Canada reported that consumer price inflation remained at or above three percent for three consecutive months, closing September at 3.1 percent.
Despite headline figures sitting near the upper bound of the central bank’s one to three percent target range, core inflation has hovered closer to two percent for months. This divergence suggests that broader, domestic price pressures have remained relatively contained. Central bank officials are monitoring whether isolated energy spikes will bleed into wages and the broader economy, potentially entrenching higher inflation expectations over the longer term.
Canada's Inflation Report: What Happened & How Will It Effect The Bank Of Canada's Decison On October 28th?Canada's Headline CPI ticked upwards but not exceeding expectations in fact a bit lessCore & Trim Inflation were slightly lower because energy was the whole story2/
Historical missteps loom over the current deliberations. Following the pandemic, inflation peaked above eight percent after borrowing rates remained at emergency lows of 0.25 percent until March 2022. The central bank subsequently raised rates to five percent by July 2023. Economists note that policymakers are eager to avoid repeating past delays.
Derek Holt, head of capital markets economics at Scotiabank, argued that officials are shifting toward a pre-emptive stance rather than reacting solely to past data.
Potential Fallout for Real Estate and Borrowers
Any decision to resume raising borrowing costs carries immediate consequences for indebted households and a sluggish housing market. Higher benchmark rates translate directly into rising payments for variable-rate mortgages, consumer loans, and lines of credit.
Nationwide home sales volumes are currently at a 25-year low. Mortgage and debt specialists warn that renewed tightening could further depress activity. Scott Terrio, manager of consumer insolvency at Hoyes Michalos & Associates, described the housing market as struggling, noting that higher rates would significantly impact vulnerable borrowers. When variable borrowing costs climb, prospective buyers face stricter qualification hurdles, which often reduces purchasing power and places downward pressure on property valuations.
While some commercial forecasters, such as Macquarie Group economist David Doyle, project a steady cycle of rate increases extending through late 2027, the immediate focus remains on whether policymakers will initiate that cycle at the upcoming meeting.