Bank of Canada hike bets grow among economists, traders

More economists and traders expect the Bank of Canada to hike interest rates next week after the central bank’s latest surveys showed inflation expectations rising.

The Bank of Montreal, RBC Dominion Securities and Desjardins Group flipped their calls on Monday, betting officials led by Governor Tiff Macklem are likely to raise borrowing costs to 2.50% at the Oct. 28 meeting.

Earlier Monday, Statistics Canada reported inflation accelerated to a 3.1% yearly pace, below expectations in a Bloomberg Survey. Markets shrugged off the release and bonds continued to sell off across the curve. As of 2:45 p.m. Ottawa time, traders in overnight swaps put the odds of hike at 87%, up from nearly 70% earlier in the day. 

“Despite this morning’s milder-than-expected CPI report, inflation risks remain tilted to the upside given the trade war and still-elevated energy prices, with no end in sight to either shock,” Shelly Kaushik, an economist with the Bank of Montreal, wrote in report to investors.

On Monday the bank also released its business and consumer outlook surveys, which found consumers’ longer-term inflation expectations are rising. Roughly half of firms said they plan to pass some or all of their costs from higher oil prices and tariffs on to customers.

“Central bankers can no longer look through the inflationary impact of high energy prices,” said Royce Mendes, head of macro strategy at Desjardins Group.

“Businesses have faced elevated input costs for long enough that we now believe more broad-based consumer price increases are imminent. Consumers’ longer-term inflation expectations have also risen to levels not seen since the worst of the COVID-era price hikes, reinforcing the need for action,” he said.

Bank of Nova Scotia firmed up its call for hike after Monday’s data release, and Manulife is still forecasting back-to-back increases, this month and in December.

“If a hike is significantly priced, then they’re likely to deliver one since easing financial conditions by whiffing would be tough to justify,” said Derek Holt, head of capital markets economics at Scotiabank.

Despite growing bets on a hike, the consensus in a recent Bloomberg survey points to a hold next week.   

The bank has warned that it may need to increase borrowing costs if energy prices remain elevated and policymakers see further evidence of inflation pressures spreading from higher gasoline prices to other goods and services.

On Saturday, in a call with reporters, Macklem said there was “no resolution in sight for the conflict in the Middle East,” adding that higher energy prices from the conflict are also boosting exports, incomes, government revenues and investment. 

©2026 Bloomberg L.P.

Source: Canadian Mortgage Trends