The Bank of Canada is expected to raise its key interest rate on Wednesday for the first time since July 2023. Financial markets and economists are betting on a quarter-point increase as the Iran war pushes up oil and gas prices.
The bank interest rate decision comes as the central bank weighs rising energy costs against an economy that has shed jobs and faces poor growth prospects. Economists broadly agree a hike is coming. They are divided on whether it starts a series of increases or stands as a single signal on inflation.
For households, the outcome matters most to variable-rate mortgage holders and would-be buyers. Home sales were already falling before the decision, and real estate professionals say the prospect of higher rates is keeping some buyers out of the market.
Will the Bank of Canada raise rates today?
Financial markets and a Reuters poll of economists expect the central bank to deliver a quarter-point hike to its policy rate, according to Global News. It would be the first increase in the key lending rate since July 2023.
The policy rate, which sets the floor for borrowing costs, has been 2.25 per cent since October 2025, when the bank cut it from 2.5 per cent. A quarter-point move would lift it to 2.5 per cent.
Most economists expect the bank to raise rates before the end of the year whatever it decides on Wednesday, CBC reported. They disagree on when that will happen and by how much.
Alongside the rate announcement, the bank will publish updated forecasts for inflation and economic growth, Global News reported.
Why the bank is under pressure to hike now
The central bank faces pressure to tighten because the Iran war and other geopolitical conflicts have driven up oil and gas prices. Those costs are expected to raise prices for goods and services beyond the gas pump, according to Global News.
The economy is less robust. CBC reported that the U.S. trade war is taking a toll on Canada, though the economy has remained resilient.
Andrew DiCapua, principal economist at the Canadian Chamber of Commerce, told CBC the Canadian economy is weak despite the inflation pressure. He said it has shed about 100,000 jobs in recent months and that the outlook for growth is poor.
"The economy doesn't need that slowing. We don't need to hit on the brakes," DiCapua said.
Bank of Canada rate hike: one move or the start of a cycle?
Central banks rarely move rates as a one-off. They more often raise or lower them over consecutive decisions, CBC noted. Some economists expect that pattern this time.
David Doyle, head of economics at Macquarie Group, expects the bank to raise rates on Wednesday and then keep raising them by a total of 125 basis points through 2027, CBC reported. That would take the overnight rate to 3.5 per cent.
DiCapua takes a different view. He told CBC that a hike on Wednesday would show the bank is dealing with inflation. He predicted the bank would then wait to see whether further increases are needed.
What a hike would mean for Canada mortgage rates and home buyers
Home sales have been sliding. The Canadian Real Estate Association said sales fell 7.7 per cent in September from the same month a year earlier.
"Things are pretty slow right now," said John Pasalis, president at Move Smart Realty.
Pasalis told CBC that fixed mortgage rates have been climbing as bond yields rose. Variable rates, which are tied to the Bank of Canada's rate, have held steady while the central bank has been on hold. A hike would move those variable rates higher.
He said the prospect of a rate increase has already made some potential buyers wary and pushed them to the sidelines. In his view, one or two hikes might not have a big effect on the housing market, because consumers have largely come to expect them. The possibility of a longer series could keep more people from buying.
"Two rate hikes in the next six months is one thing, but four rate hikings obviously is a much … bigger story," Pasalis said.
He added that he did not think the market was at that point, but that a shift in sentiment in that direction would affect buyer behaviour.
U.S. Federal Reserve decision also due Wednesday
The U.S. Federal Reserve announces its own rate decision later on Wednesday. It is widely expected to hold rates steady after raising them last month, CBC reported.
Markets expect at least two more U.S. rate hikes by mid-2027, as inflation stays elevated during the ongoing U.S.-Iran conflict. Analysts have warned that persistent inflation, heavy government and corporate borrowing, and uncertainty around next week's U.S. midterm elections continue to weigh on financial markets.
Christian Hoffmann, head of fixed income at Thornburg Investment Management, told Reuters he did not think the Fed was entirely in control of market direction. He said the investment cycle driven by artificial intelligence, and investor sentiment around it, was increasingly the bigger story.
The Bank of Canada's decision and its new inflation and growth forecasts are due later on Wednesday. This story will be updated when they are announced.