Why economists think the Bank of Canada may hike rates on Wednesday

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeNewsEconomyWhy economists think the Bank of Canada may hike rates on WednesdayPolicymakers continue to grapple with elevated inflation due to higher energy prices from the Iran warLast updated 10 minutes ago Bank of Canada governor Tiff Macklem speaks during the AI and the Global Economy: From Risk to Opportunity panel at the Annual Meetings of the International Monetary Fund and the World Bank Group at the Queen Sirikit National Convention Center in Bangkok on Oct. 16, 2026. Photo by Lillian SUWANRUMPHA/AFP via Getty Images filesEconomists are bracing for the possibility of a Bank of Canadainterest rate hike on Wednesday, following a sudden shift in tone that suggests the central bank is growing more concerned about persistent inflation.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe Bank of Canada has held its policy rate steady at 2.25 per cent for more than 11 months, and was widely expected to stay on the sidelines for the rest of the year.This advertisement has not loaded yet, but your article continues below.But a number of economists are predicting the bank will hike this week, with markets pricing in an 80 per cent chance that rates will rise for the first time since 2023.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againEconomists at Desjardins Group are among those who have changed their view. As recently as Sept. 22, the bank was projecting a hold, but new forward-looking data ultimately led them to change their minds.Roughly half of firms surveyed in the central bank’s latest Business Outlook Survey said they planned to pass on some or all of their cost increases related to the Iran war and tariffs to consumers, and firms that have passed on some of the earlier cost increases planned to continue to do so.Elevated energy prices and Canadian retaliatory tariffs could further add to inflationary pressure, while U.S. tariffs are expected to dampen economic growth for the rest of the year, all of which also contributed to Desjardins’ decision.The firm now expects the central bank to raise its overnight rate to 2.5 per cent on Wednesday.“Both businesses and consumers increased their expectations for future inflation…. That led us to the conclusion that the Bank is going to be hiking rates on Wednesday of next week,” said Randall Bartlett, Desjardins’ deputy chief economist.This advertisement has not loaded yet, but your article continues below.“Businesses can only eat those higher costs for so long…. The Bank of Canada certainly wants to get ahead of that by raising rates and tamping down on domestic demand, which has been strong in spite of all of these headwinds, and ultimately cooling off some parts of the economy to offset some of the heat that we’re seeing on inflation from other areas.”Nathan Janzen, assistant chief economist for RBC Economics, said the recent inflation data alone wasn’t enough to compel its economists to revise their forecasts, especially since core measures have remained relatively stable.Instead, it was a new “hawkish” tone from Bank of Canada in recent communications.Bank of Canada governor Tiff Macklem‘s recent comments from the sidelines of the International Monetary Fund meetings signalled that the central bank’s economic outlook has changed since July because energy prices have remained higher than expected. Officials have found it increasingly difficult to look through the direct impact of higher energy prices, and they are prepared to adjust the overnight rate as needed to keep inflation expectations anchored.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.RBC Economics’ now projects a rate hike to 2.5 per cent on Wednesday, instead of remaining on hold until the end of 2026.“The expectation next week is that they’ll raise it by a quarter (percentage) point, and that likely won’t be the last hike,” Janzen said.However, RBC said a hike wasn’t a lock: There is still a chance central bank will hold interest rates because the economy is still quite weak and there is sufficient slack that will slow inflation passthrough.“(Central bank officials) have to think about what inflation is going to be in the future when they make their policy decisions.… If they’re too slow to hike, they can let inflation pressures build unnecessarily, and if they’re too fast to hike, they can unnecessarily slow the pace of growth in the economy, and it looks like they’re leaning towards the former,” Janzen noted.Andrew Grantham, executive director and senior economist at CIBC Capital Markets, said it may be a bit early for an interest rate hike. The economy hasn’t fully recovered after a sluggish 2025, and real gross domestic product growth is expected to slow to an annualized rate of two per cent in the third quarter of 2026 and under one per cent in the fourth quarter.This advertisement has not loaded yet, but your article continues below.Despite that, CIBC’s forecasts now say the central bank may hike rates to 2.5 per cent in October and 2.75 per cent in December or January to bring the key interest rate to a neutral rate, where monetary policy is neither restricting nor stimulating the economy.“(Macklem was) definitely hawkish relative to what economists and financial markets were forecasting prior to those comments. Most people had assumed, given the uncertainty over trade and the impact that would have over the fourth quarter, along with the fact that core inflation measures haven’t picked up, that the Bank of Canada would need to raise interest rates in December or January,” he said in an interview.“It would surprise us if the governing council doesn’t raise rates, given those comments…. The growth outlook isn’t impacting their decision. They are much more worried about inflation at the moment rather than some of the the quarterly volatility in terms of GDP.”This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.