Bank of Canada rate hike odds jump ahead of Oct. 28

Financial markets and economists are split on whether the Bank of Canada will raise its key interest rate at its Oct. 28 decision, with the odds of a hike climbing sharply after Governor Tiff Macklem signalled that high oil prices are pushing up inflation.

The central bank’s policy rate has been 2.25 per cent since October 2025, according to Canadian Mortgage Professional. Statistics Canada reported on Oct. 19 that the annual inflation rate rose to 3.1 per cent in September from 3.0 per cent in August, driven by a 27.8 per cent jump in gasoline prices and slightly below the 3.2 per cent analysts had expected, according to investingLive.

Commerzbank analyst Norman Liebke wrote that the probability of a rate move at the Oct. 28 meeting rose from 36 per cent to more than 75 per cent on Monday morning, FXStreet reported. Liebke said the shift followed comments Macklem made on Saturday at the annual International Monetary Fund and World Bank meetings in Bangkok, where the governor flagged support from high oil prices and likely upward revisions to the bank’s inflation forecasts.

Liebke also cautioned that a hike at the end of the month “may still appear premature at this stage.” He said the key question is whether the bank acts pre-emptively or waits for the renewed trade conflict to show up in the data and in core inflation.

Forecasters are divided. UBS economist Abigail Watt expects two quarter-point hikes, in October and January, saying the bank has become less willing to look through above-target headline inflation, Canadian Mortgage Professional reported. Manulife strategist Dominique Lapointe expects increases in October and December. Oxford Economics and Scotiabank have also moved their calls to an October hike, the publication said.

RBC sees it differently. Assistant chief economist Nathan Janzen and senior economist Claire Fan expect a hold in the near term and a gradual hiking cycle starting in early 2027, saying communications from the central bank suggest it will be a close call.

Macklem has warned about moving too slowly. “Two things probably have to happen if you’re too slow: One is, you’re going to have to raise rates very quickly,” he said in a speech in Halifax. He added that “you’re probably going to end up having to raise them more than if you moved earlier,” Canadian Mortgage Professional reported.

The other side of the argument is the labour market. Canada shed jobs in both August and September, and the unemployment rate climbed back to its level from early 2026, which investingLive read as continued slack. In an earlier speech, Macklem said the bank can “look through the direct effect of higher oil, but only while those pressures stay contained,” and does not want to be “too slow to respond if they broaden.”

Commerzbank said surveys point to elevated price expectations but there is limited evidence so far of broadening pressures.

A hike would raise borrowing costs for people with variable-rate mortgages and lines of credit, while a hold would keep the rate where it has been for a year. Energy markets are part of the picture: our earlier reports covered oil prices climbing as Strait of Hormuz fears grow and the TSX closing lower with energy the only sector up.

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Sources: Canadian Mortgage Professional, FXStreet (Commerzbank), investingLive, Statistics Canada release of Oct. 19 as reported by investingLive. Photo: Bank of Canada Governor Tiff Macklem speaks in Ottawa on Sept. 3, 2026. THE CANADIAN PRESS/Justin Tang