Global banks are rethinking Canada's rate path as inflation climbs past the BoC's 2% target
After seven consecutive holds, the debate over the Bank of Canada's next move has narrowed, and a rate hike in October is now a baseline expectation for a growing number of major forecasters.
UBS Global Research revised its outlook this week, with economist Abigail Watt calling for two successive 25-basis-point increases. The firm had previously held that hikes would not come until next year.
"Our baseline now includes one 25-basis-point hike in October and another in January, followed by a prolonged hold once the policy rate reaches the midpoint of the neutral range," Watt said.
The Bank of Canada has kept its overnight rate at 2.25% since October 2025, the lower end of its neutral range of 2.25% to 3.25%. Two 25-basis-point increases would bring the rate to 2.75%, the midpoint.
The growing consensus that the Bank of Canada would hold steady through all of 2026 has been eroding steadily as inflation data refused to co-operate.
Macklem's language shifts the calculus
UBS's revised call traces to a change in tone from Bank of Canada Governor Tiff Macklem. Following the September 2 hold, Macklem indicated that upside risks to inflation were increasing and that Canadian businesses appeared to be adapting to the pressures of the Canada-US trade war.
Watt argued that the Bank is growing less tolerant of above-target price growth.
"That shift suggested the Bank of Canada was becoming less willing to look through above-target headline inflation while waiting for clearer evidence of domestic demand pressure," Watt said.
Additional comments made by Macklem at a recent speech in Halifax, she added, support the case for a preemptive rate adjustment.
"Two things probably have to happen if you're too slow: One is, you're going to have to raise rates very quickly," he said.
"And secondly, you're probably going to end up having to raise them more than if you moved earlier because things will have gotten more out of hand."
Canada's consumer price index rose to 3% year over year in August, exceeding the Bank of Canada's 2% target. UBS projects that figure will reach 3.3% when Statistics Canada reports September data on October 19, just nine days before the next rate decision.
Manulife and Oxford join the shift
Manulife Financial has also moved up its timeline, now expecting hikes in October and December after previously calling for rates to hold through 2026 before rising in mid-2027.
"Inflation dynamics are changing," said Dominique Lapointe, global-macro strategist at Manulife, in a report published this week.
Dominique Lapointe of Manulife Financial now expects the Bank of Canada to raise rates twice before the end of 2026, citing mounting inflation pressures and a stronger economic backdrop.https://t.co/l1rQHMWbaR
— Canadian Mortgage Professional Magazine (@CMPmagazine) September 25, 2026
Oxford Economics similarly anticipates October and December increases. Senior economist Michael Davenport had previously called for no movement until late 2027. Bank of Nova Scotia has also moved its call to October.
Meanwhile, Royal Bank of Canada (RBC) economists are forecasting that the BoC will hold its policy rate steady in the near term before beginning a gradual hiking cycle in early 2027.
"Incoming data will matter for the October decision, with communications from the BoC continuing to suggest it will be a close call," said RBC assistant chief economist Nathan Janzen and senior economist Claire Fan.
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