A majority of economists believe the Bank of Canada will implement a Bank of Canada interest rate hike of 25 basis points on October 28. According to a Reuters poll, the move would bring the overnight rate to 2.50%, marking the first increase in one year.

Why are rates expected to rise?

Recent economic indicators suggest that inflationary pressures are mounting. While September inflation sat at 3.1%—just above the central bank's 1% to 3% target—new survey data indicates growing concerns.

Read also Rising inflation and trade tensions spark interest rate debate

Several factors are driving these expectations:

  • Rising inflation expectations found in recent business and consumer surveys.
  • A breakdown in trade discussions with the United States, Canada's primary export destination.
  • Increasing oil prices, which reached $117 a barrel on Friday.

What is the broader economic context?

This anticipated move marks a major shift in the financial landscape. In a previous poll, 80% of economists expected the bank to hold its rate steady at 2.25% through the end of 2026. However, recent comments from Governor Tiff Macklem were interpreted by markets as a signal that a rate hike is imminent.

Interest rate futures have reacted sharply to these signals, moving from pricing in a 30% chance of an October hike to approximately a 75% likelihood. This volatility comes as the central bank monitors a changing global environment, including the impact of the US-led war with Iran on inflation trends.

What is the forecast for 2027?

Beyond the immediate October move, many experts anticipate further tightening. The poll suggests that 55% of respondents foresee an additional hike before the end of March 2027. If these predictions hold true, the overnight rate could reach 2.75%.

This shift represents a significant change in sentiment. A macro strategist at Desjardins said the survey responses point to more serious inflationary pressures ahead.

FAQ

What is the target inflation range for Canada?

The Bank of Canada aims to keep inflation within a target range of 1% to 3%.

How has the market reacted to potential hikes?

Interest rate futures have shifted significantly, moving from a 30% chance of an October hike to approximately a three-in-four likelihood.