RBC economists flag near-even odds on an increase or hold
The Bank of Canada enters its October 28 rate decision at a crossroads, with Royal Bank of Canada (RBC) economists projecting a 25-basis-point hike to the overnight rate, the first since 2023. But Frances Donald, Chief Economist at RBC in Toronto, and Nathan Janzen, Assistant Chief Economist at RBC, are not confident.
“We have very low conviction on the idea of a rate hike this soon, and it’s almost equally probable the central bank uses this meeting to tee-up a coming hike in December or January,” they wrote in an October preview.
Crucially, the RBC team is not calling for a hike on urgency grounds.
“Our expectation of a move higher from the BoC on Wednesday is not because we believe there is an urgency to hike interest rates,” Donald and Janzen wrote.
Instead, they attribute it to a shift in the Bank’s communication since its September 2 decision, which they read as signalling a preference to act preemptively against inflation rather than wait for it to materialise.
The case for patience remains strong. Canada’s labour market lost 68,300 jobs in September, its worst month of 2026, lifting the unemployment rate to 6.5%.
August gross domestic product is expected to have risen just 0.1%, below Statistics Canada’s 0.2% advance estimate.
Five-year Government of Canada bond yields have nonetheless climbed more than 40 basis points over three months, while West Texas Intermediate (WTI) oil has averaged US$95 per barrel since the last BoC decision, 54% above year-earlier levels.
Sherry Cooper of Dominion Lending Centres Group says underlying inflation trends remain consistent with a wait-and-see approach, while Stéfane Marion of National Bank of Canada expects the Bank of Canada to refrain from hiking rates next week. https://t.co/7HWcvP53Lr
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 20, 2026
Divided views on whether a rate hike is warranted
Canada Mortgage and Housing Corporation (CMHC) chief economist and senior vice president Mathieu Laberge, addressing the Mortgage Professionals Canada (MPC) National Conference in Calgary on October 18, was unambiguous.
“I don’t see rates going up anytime soon,” Laberge said.
“Governor Macklem was really, really clear that he has no tools to do anything about global inflation. He could kill the economy as much as he wants, and kill domestic inflation, but current inflation is coming from supply chain disruption and oil prices due to war in Ukraine and the Strait of Hormuz.”
Laberge placed his base case firmly beyond this year.
“The economy is not extremely [strong] right now. We saw the labour market numbers,” he said.
“So my hunch right now is: not before 2027. Our previous forecast was mid-2027. We may bring that forward a little, so maybe end of Q1, early Q2 2027, but I don’t see anything this year.”
Douglas Porter, chief economist at BMO Capital Markets in Toronto, acknowledged the divided outlook.
“If anything, the threat of higher inflation has rekindled chatter of a potential rate hike in 2026,” Porter said.
“We still view that as a very long shot indeed, with the economy struggling to grow, core inflation moving closer to the 2% target, and USMCA uncertainty still clouding the outlook.”
What the October 28 decision means for mortgage brokers
Donald and Janzen argue a 25-bps move on Wednesday would not materially alter the medium-term economic picture – their base case already assumes 100 basis points of rate increases in 2027.
For brokers, what matters more is the forward guidance that accompanies it.
“Rather than the rate hike itself, we will be monitoring for any communication that helps us understand the Bank of Canada’s expected path of interest rates ahead,” they wrote.
The RBC economists offer a broader signal that mortgage professionals should not ignore.
“Central banks do not have the same patience for inflation they might have had in the past, and are willing to act preemptively to guard against it,” Donald and Janzen wrote.
For professionals navigating Canada’s ongoing mortgage renewal wave, Laberge’s remarks underscore that portfolio risk endures regardless of Wednesday’s outcome.
“The renewal shock may be easing for some households, but the risk has not vanished,” he said.
“It has moved. It’s sitting in existing portfolios. It’s more regionally concentrated than it’s ever been, and the resale conditions are softer.”
Adding to the complexity, the Bank will deploy Prima, its new forecasting model that places mortgage renewals at the centre of the rate-setting framework, at its October meeting for the first time.
“No model is going to solve every problem, but we are hopeful that this model will be better suited for a world with more supply shocks and in a more interconnected world,” Macklem told reporters in September.
Whether it sharpens the Bank’s read on supply-driven inflation will become clear Wednesday.
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