Bank of Canada Rate Hike Odds Rise as Inflation and Energy Costs Persist

A rate hike is back in play

The Bank of Canada has held its policy rate at 2.25 per cent since cutting it by a quarter point in October 2025. Now, with inflation proving stubborn and energy prices surging, some economists and traders think the next move could be up. Markets still broadly expect the Bank to leave rates unchanged at its Oct. 28 meeting. But the forecast is shifting: Bank of Montreal, RBC Dominion Securities and Desjardins Group have all changed their calls from a hold to a hike. Overnight swap traders put the odds of a 25-basis-point increase at 87 per cent, up from 70 per cent earlier in the week. Those bets reflect the difference between today’s rate and the rate traders expect in the future; they aren’t a guarantee of what the Bank will do. The pressure is coming partly from energy. Bank of Canada Governor Tiff Macklem has said borrowing costs may need to rise if prices stay high, pointing to the unresolved conflict in the Middle East and its effects on global energy markets. Statistics Canada’s latest inflation report showed fuel costs rising, though they had not yet spread meaningfully to other parts of the economy. A Bank of Canada survey released the same day found businesses were preparing for higher prices. Derek Holt, Scotiabank’s head of capital markets economics, says the case for an increase is persuasive, though not certain. “It's not a slam dunk call, but there is probably enough supporting evidence for a hike,” he wrote Monday. Macquarie Group economist David Doyle expects the policy rate to rise by 125 basis points by the end of 2027. His baseline forecast calls for a hike at this month’s meeting, followed by a sustained series of increases. Mortgage broker Leah Zlatkin of LowestRates.ca also sees the possibility of a cycle: “If there is a hike, I do think it's going to be a cycle.”

Housing would feel the hit

The stakes extend well beyond the next policy announcement. Higher rates would raise payments for people with variable-rate mortgages and push up rates on new fixed mortgages. Fewer prospective buyers would qualify for financing, weakening demand and potentially putting further downward pressure on home prices. The housing market is already sagging. “The housing market is kind of on its knees right now, and rising rates is like tossing a drowning guy an anchor,” said Scott Terrio, consumer insolvency manager at Ontario firm Hoyes Michalos & Associates. He expects a hike to “reverberate massively.” Home sales nationwide are at a 25-year low, according to Ben Rabidoux of Ontario-based Edge Realty Analytics. Buyer confidence, he said, is “unbelievably weak,” with uncertainty spanning the Canada-U.S. trade war and AI’s potential effect on jobs. A rate increase would land in a market already short on confidence and sales.

A market that may keep softening

Per-person home sales have fallen back to levels last seen in the 1990s, according to Rabidoux—a period he described as marked by a severe recession. That’s a striking measure of how weak activity has become. If interest rates climb, he says, a gradual decline in prices over the next three to six months is plausible. The Canadian Real Estate Association has cut its 2026 home sales forecast for a third consecutive quarter, citing a more hawkish Bank of Canada. It now expects 444,530 homes to sell by year-end, down 5.2 per cent from 2025. The forecast points to continued strain, though it doesn’t tell us how far prices might move. Toronto-area prices have recently fallen, a trend mortgage broker Zlatkin sees as a reason to consider buying now. [Home prices dropped recently](https://www.cbc.ca/player/play/video/9.7386131), he says. His case is that buyers who qualify for a property today should still qualify later if rates rise, even if prices continue to slide. That’s a useful argument about borrowing capacity, but it doesn’t settle the timing question. If you’re considering a purchase, the market’s weak sales figures and the possibility of further price declines are part of the same picture as today’s affordability. [CREA downgraded its 2026 home sales forecast](https://www.cbc.ca/news/business/crea-september-2026-forecast-downgrade-9.7382355).