The Bank of Canada has kept interest rates steady since July 2023. While it is widely expected that rates will remain unchanged next week for the eighth consecutive time, there is a growing sentiment among economists and traders that the central bank may increase its trend-setting rate to address persistent inflation.
The current policy rate has been at 2.25 per cent since a quarter-point reduction in October 2025. Bank of Canada Governor Tiff Macklem recently indicated that if energy prices continue to rise, there may be a need to raise borrowing costs due to ongoing global energy market disruptions related to the conflict in the Middle East.
The latest inflation report from Statistics Canada, released on Monday, highlighted the impact of surging energy prices. Although fuel costs have not yet significantly affected other sectors of the economy, a Bank of Canada survey revealed that businesses are preparing for higher prices.
While a recent Bloomberg survey still leans towards no change, the Bank of Montreal, RBC Dominion Securities, and Desjardins Group have shifted their forecasts from a hold to a rate hike for October 28. Traders in the overnight swap market now indicate an 87 percent probability of a 25-basis point rate increase by the Bank of Canada next week, up from 70 percent earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, is advocating for a rate hike, citing sufficient evidence to support such a move. Macquarie Group economist David Doyle also anticipates a series of rate hikes, predicting a 125-basis point increase by the end of 2027.
Leah Zlatkin, a licensed mortgage broker, concurs with the possibility of a rate hike cycle, emphasizing the potential impacts on real estate. If interest rates rise, there could be significant repercussions on the country’s struggling housing market, leading to higher mortgage payments, reduced buyer eligibility, and declining home prices.
Ben Rabidoux from Edge Realty Analytics notes that the current volume of home sales in Canada is at a 25-year low, attributing weakened buyer confidence to various economic uncertainties, including trade tensions and the impact of AI on employment. He foresees a possible gradual decline in home prices over the next few months if interest rates increase.
The Canadian Real Estate Association recently revised its 2026 home sales forecast downward, citing a more hawkish tone from the Bank of Canada. They anticipate a 5.2 percent drop in home sales compared to the previous year. Home prices have already fallen in the Toronto area, indicating a potential buying opportunity amidst market fluctuations.
Overall, rising interest rates could have a substantial impact on the real estate market, potentially exacerbating existing challenges and reshaping the dynamics between buyers and sellers in the housing sector.