The Bank of Canada has maintained the same interest rate since July 2023. Despite expectations of another hold next week, there is a growing sentiment among economists and traders that the central bank may raise its trend-setting rate to combat persistent inflation. The policy rate has been steady at 2.25% since a quarter-point reduction in October 2025.
Bank of Canada Governor Tiff Macklem has cautioned that an increase in borrowing costs might be necessary if energy prices remain high due to ongoing conflicts in the Middle East disrupting global energy markets. Recent inflation data from Statistics Canada highlighted surging energy expenses, though the impact on other sectors remains limited. Nevertheless, a Bank of Canada survey revealed that businesses are preparing for increased prices.
While a Bloomberg survey indicates an expected hold, key financial institutions like Bank of Montreal, RBC Dominion Securities, and Desjardins Group have revised their predictions from a hold to a rate hike for the upcoming meeting on October 28th. Traders in the overnight swap market now place an 87% probability on a 25-basis point rate increase by the Bank of Canada next week, up from 70% earlier in the week.
Derek Holt, Scotiabank’s head of capital markets economics, advocates for a rate hike, citing sufficient evidence to support the move. Macquarie Group economist David Doyle also foresees 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 if implemented. She believes that such a move would have a substantial impact on the real estate market, potentially leading to a decline in home prices and affecting buyer confidence.
Experts warn that rising interest rates could exacerbate the challenges faced by the housing market, particularly impacting variable-rate mortgages and reducing the pool of eligible buyers. With home sales already at a 25-year low, concerns about economic uncertainties, including trade tensions and job market shifts due to AI, are further dampening buyer confidence.
As interest rates rise, the gradual decline in home prices over the coming months becomes increasingly plausible. Industry forecasts have adjusted downwards, with the Canadian Real Estate Association revising its 2026 sales projections amidst a more hawkish stance from the Bank of Canada. Recent drops in home prices in regions like Toronto suggest opportunities for buyers, although the potential for further price decreases looms.
Overall, the looming prospect of rising interest rates signifies a critical juncture for the real estate market, with implications for both buyers and sellers navigating a changing economic landscape.