Several big banks now see Bank of Canada hike on Oct. 28

Several of Canada’s big banks now expect the Bank of Canada to raise its key interest rate by a quarter of a percentage point to 2.5 per cent on Oct. 28, a shift from the hold most economists had forecast earlier this month.

Bank of Montreal, Scotiabank and Desjardins were all forecasting a hike as of Monday, Oct. 19, The Globe and Mail reported. CBC News reported on Oct. 21 that RBC Dominion Securities, Royal Bank of Canada’s securities arm, has also flipped from a hold to a hike. Macquarie Group economist David Doyle said in a note to clients on Oct. 19 that a hike this month remains his baseline, CBC reported.

The change is not unanimous. TD Economics, RBC Economics and Dominion Lending Centres chief economist Sherry Cooper all said on Oct. 19 that they expect the bank to hold, Mortgage Professional America reported. The consensus in a recent Bloomberg survey of economists still pointed to a hold, CBC and The Globe and Mail reported, and the Globe described a hike call as a minority view among analysts.

Our earlier coverage, including our Oct. 15 report that economists expected the bank to hold, reflected the consensus at the time. Several forecasters have since changed their calls.

Financial markets moved first. Traders in the overnight swap market put the odds of a 25-basis-point hike at 87 per cent, up from 70 per cent earlier in the week, according to Bloomberg data cited by CBC on Oct. 21. On Oct. 16, before the shift, those odds stood at about 34 per cent, The Canadian Press reported, citing LSEG Data and Analytics. Market odds change daily and can move again before the announcement.

The Bank of Canada’s policy rate is 2.25 per cent, where it has been since a quarter-point cut on Oct. 29, 2025, according to the central bank’s website. The bank held the rate at every decision since, most recently on Sept. 2. Its next announcement, with a new Monetary Policy Report, is set for 9:45 a.m. Eastern time on Oct. 28.

Much of the repricing followed remarks by Governor Tiff Macklem, who told reporters on Saturday, Oct. 17, at International Monetary Fund meetings in Bangkok that the bank’s inflation outlook would be “quite a bit higher” than its July forecast, The Canadian Press reported. “The question we’re going to be asking ourselves is, is inflation likely to come back down towards our target on its own, or are we going to have to raise interest rates to influence the path?” Macklem said, as we reported in our coverage of his comments.

Statistics Canada reported on Oct. 19 that annual inflation rose to 3.1 per cent in September from three per cent in August, driven by a 27.8 per cent jump in gasoline prices. That was slightly below the 3.2 per cent economists had expected, and the bank’s preferred core measures eased, with CPI-trim at 1.8 per cent and CPI-median at 1.9 per cent.

The Bank of Canada’s own surveys, also released Oct. 19, pointed to rising price pressure. Its consumer survey found long-term inflation expectations moved higher in the third quarter, in line with already elevated short-term expectations. Its Business Outlook Survey found firms’ inflation expectations eased overall from the previous quarter but stayed elevated, and rose again after Canada-U.S. trade talks broke down in late August.

“Central bankers can no longer look through the inflationary impact of high energy prices,” Royce Mendes, head of macro strategy at Desjardins, said in a note quoted by The Globe and Mail. BMO strategist Benjamin Reitzes said headline inflation looks likely to hold around three per cent well into 2027, and that “the case for a hike isn’t ironclad.”

Others urged caution. RBC senior economist Claire Fan said the bank’s base case remains no rate increases until 2027, though risks are “tilted toward earlier moves,” the Globe reported. CIBC senior economist Andrew Grantham said the inflation report “suggests that there is little rush,” The Canadian Press reported.

For borrowers, a quarter-point hike would show up quickly. Lenders typically move their prime rates in step with the Bank of Canada, and variable-rate mortgages and lines of credit are priced off prime. Holders of adjustable-rate mortgages would see their payments rise, while many fixed-payment variable mortgages keep the same payment but put more of it toward interest. New fixed rates follow bond yields, which have already climbed, as our report on recent fixed mortgage rate increases showed.

Our calculation, as an illustration only: on a $500,000 adjustable-rate mortgage with 25 years of amortization left, a rate rising from four per cent to 4.25 per cent would lift the monthly payment from about $2,639 to about $2,709, or roughly $70 a month and $834 a year. That assumes monthly payments, monthly compounding and the full quarter-point passed through to the mortgage rate. On a line of credit with a $20,000 balance, a quarter-point increase adds about $4 a month in interest, or $50 a year. Actual rates and terms vary by lender.

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