Bank of Canada hike odds near 80% before Wednesday's decision
Markets price roughly an 80% chance that Tiff Macklem's central bank raises its key rate to 2.50% on Wednesday, its first move in a year, though some economists say inflation is too narrow to justify it.
A Bank of Canada hike this Wednesday has gone from long shot to base case in about two weeks. Traders price roughly an 81% chance that the central bank lifts its policy rate by a quarter point to 2.50% on Oct. 28, which would be its first move in a year, according to an investingLive preview published on Oct. 25.
What happened
Expectations shifted fast. A Reuters poll taken from Oct. 21 to 23 showed 19 of the 34 economists surveyed now forecasting a hike this week, and a majority see one more by the end of March 2027, which would take the rate to 2.75%. In the previous poll, 80% of respondents had expected the bank to hold through 2026. BMO economist Shelly Kaushik wrote after the latest CPI release that inflation risks "remain tilted to the upside given the trade war and still-elevated energy prices."
The trigger was Governor Tiff Macklem, who signaled that the bank would probably raise its inflation projections, which traders took as a hint of tightening. Before that, the Bank of Montreal, RBC and Desjardins had moved their calls to a hike after the central bank's own surveys showed households' longer-term inflation expectations rising, the Financial Post reported. Roughly half of firms said they planned to pass on some or all of their higher energy and tariff costs.
Swaps traders had put the odds at about 30% a week before those surveys, the Financial Post said, so the repricing has been dramatic.
Why it matters
Not everyone is convinced. TD argues that inflation is not broad enough to warrant a move and points to near-term uncertainty, while HSBC says survey data, especially consumer expectations, make a hike the right call, investingLive reported. Headline inflation was 3.1% in the latest report, below forecasts, yet bonds still sold off.
"Central bankers can no longer look through the inflationary impact of high energy prices," Royce Mendes, head of macro strategy at Desjardins, told the Financial Post. Oil is the swing factor: higher crude lifts Canadian inflation but also supports the commodity-linked loonie. Canada would be joining a wave of energy-driven tightening, from the Philippine central bank's half-point hike to the Federal Reserve, whose minutes kept a year-end hike alive.
A Bank of Canada hike is now close to fully priced, so the bigger market reaction is likely to come from guidance. A hold would surprise markets and could send the Canadian dollar sharply lower, while a hike paired with a signal of more to come would support it.
What's next
The rate announcement and the new Monetary Policy Report arrive Wednesday at 9:45 a.m. ET. August GDP data on Friday will be the first test of whatever guidance the bank gives. The full rundown is in investingLive's preview.
The call
We say the Bank of Canada will raise its target for the overnight rate by 25 basis points on Oct. 28. Polymarket's "Will the Bank of Canada increase the target for the overnight rate by 25 bps at the October interest rate announcement?" market priced Yes at 81% at 08:24 MSK on Oct. 26. A Bank of Canada hike is backed by the bank's own surveys and Macklem's hint about higher forecasts, though TD's caution shows it is not a lock.
This article is for information only and is not investment advice. Calls are editorial forecasts, logged with market odds at the time of publication and kept on the record.