Bank of Canada to rule Wednesday as hike odds climb

The Bank of Canada will announce its interest rate decision at 9:45 a.m. ET on Wednesday, Oct. 28, with economists split on whether the central bank will raise its key rate from 2.25 per cent to 2.50 per cent or hold steady.

A Reuters poll of 34 economists conducted Oct. 21 to 23 found 19, or 56 per cent, expect a quarter-point increase. The poll’s median forecast also calls for one more hike before the end of March 2027, which would take the rate to 2.75 per cent. In the previous poll, 80 per cent of respondents expected the bank to hold at 2.25 per cent through the end of 2026.

Interest rate futures have moved sharply as well. Reuters reported the market-implied chance of an October hike rose from about 30 per cent to roughly 75 per cent. MoneySense, citing Reuters, put the odds at about 80 per cent.

Inflation is the main reason for the shift. Statistics Canada reported that the annual inflation rate rose to 3.1 per cent in September from 3.0 per cent in August, driven largely by gasoline prices that were up 27.8 per cent from a year earlier. Excluding gasoline, inflation slowed to 2.2 per cent, MoneySense reported. Oil hit US$117 a barrel on Friday, according to the Reuters poll report.

Royce Mendes of Desjardins said the survey responses suggest “there are more serious inflationary pressures coming.” Benjamin Reitzes of BMO said the bank would “rather make the mistake of hiking a little bit too early.”

Not everyone agrees. RBC chief economist Frances Donald and assistant chief economist Nathan Janzen project a 25-basis-point hike but with what they called “very low conviction,” saying a move now and a move in December or January are almost equally likely, according to Mortgage Professional America. Stéfane Marion of National Bank expects no hike this week, and Douglas Porter of BMO Capital Markets has called a 2026 hike a “very long shot,” citing a struggling economy and uncertainty over the Canada-U.S.-Mexico trade agreement.

The economy gives the bank reasons for caution. Canada lost about 68,000 jobs in September, the worst month of 2026, and the unemployment rate rose to 6.5 per cent. The Reuters poll suggests growth slowed to 1.9 per cent last quarter from 3.3 per cent in the second quarter, with 1.3 per cent expected in the current quarter.

Clay Jarvis, a mortgage expert at Ratehub.ca, told MoneySense he expects a hold. “It’s hard to see a clear path to a rate increase at this point,” he said, pointing to rising unemployment, weak growth and the trade war with the United States as more pressing concerns than inflation.

For borrowers, a hike would be felt first in variable-rate mortgages and lines of credit. Ratehub data cited by MoneySense show the lowest five-year variable rate at 3.43 per cent, which a quarter-point increase would push to about 3.7 per cent. Three- and five-year fixed rates start at about 4.34 per cent and are driven by bond yields rather than the policy rate. On a $618,480 mortgage with a 3.45 per cent variable rate and 25-year amortization, Ratehub puts the monthly payment at $3,072.

Mathieu Laberge, chief economist at the Canada Mortgage and Housing Corp., said renewal risk remains in existing mortgage portfolios. The bank will also use a new forecasting model, called Prima, for the first time at this meeting. Mortgage Professional America reported the model places mortgage renewals at the centre of rate-setting. The decision will include a Monetary Policy Report with updated projections, and the next announcement is scheduled for Dec. 9.

Markets reacted ahead of the decision. Our market report covers Tuesday’s trading, and our inflation story has the September figures in full.

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Sources: Reuters poll via Kitco, MoneySense, Mortgage Professional America.