Economists call the move preventative; mortgage brokers say affordability remains the real crisis
The Bank of Canada raised its overnight rate by 25 basis points to 2.5% on October 28, 2026, its first increase since 2023, framing the decision as risk management against building inflationary pressure rather than the beginning of a sustained tightening cycle.
Governor Tiff Macklem was direct in his reasoning: “The main argument for an increase was that energy prices are higher, they are expected to remain higher, and cost pressures are building.”
The October Monetary Policy Report (MPR) revised headline inflation to 3.5% by year-end, with the Bank’s 2% target now not expected until mid-2028.
GDP growth projections were upgraded to 1% for 2026 and 2% for 2027, with the Bank’s estimated neutral overnight rate range placed at 2.25% to 3.25%.
Economists divided on the next move
Earlier in the year, Bay Street analysts were actively debating whether a 2026 Bank of Canada rate hike was likely as oil-driven inflation pressure built. That question has now been answered. What remains contested is what follows.
Frances Donald, chief economist at Royal Bank of Canada in Toronto, and assistant chief economist Nathan Janzen described the decision as “preventative medicine,” noting the Bank’s own MPR acknowledged labour market slack and core inflation near 2%.
“The risks of future inflation were judged to have increased more than downside economic growth risk,” they wrote.
Marc Ercolao, economist at TD Economics in Toronto, characterised the hike as insurance-buying.
“We think this hike buys the Bank a few months to assess whether higher energy and input costs are actually filtering through to consumer prices,” he wrote, forecasting one additional 25-basis-point hike in Q1-2027 that would bring the policy rate to 2.75%, roughly the midpoint of the neutral range.
The central bank said on Wednesday morning it was raising that trendsetting interest rate by 25 basis points to a level of 2.50%, ending its long wait-and-see approach on the rate question. https://t.co/zVa5MRcPZe
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 28, 2026
CIBC economist Andrew Grantham projected a hold in December before a further move in January.
“We don’t expect that core measures of inflation will accelerate as much as the Bank fears, which should become more obvious early in 2027 and allow the Bank of Canada to then hold interest rates at 2.75% throughout the remainder of next year,” he wrote, adding that two-year bond yields barely moved in the wake of the decision.
Dr. Sherry Cooper, chief economist at Dominion Lending Centres in Vancouver, said the Bank was drawing a direct line to its own recent failures.
“The communications make it clear that the central bank wants to stay ahead of the curve and ‘avoid the debacle’ of 2022-23, when it was too late to raise the policy rate,” she wrote.
Bruno Valko, vice-president of national sales at RMG Mortgage Corporation in Toronto, questioned the Bank’s 2027 inflation projection of 3%, given that WTI crude had surged from approximately $67 per barrel in late February to over $100 per barrel following the US-Iran conflict.
With year-over-year comparisons in 2027 measured against an already elevated 2026 base, Valko argued the maths did not hold.
“Come 2027, when comparing oil prices to 2026, assuming oil continues to hover around $100 per barrel, I dispute the rationale around how inflation can average 3% when it’s currently 3.1%,” he wrote.
Brokers warn of market consequences
For the broker community managing Canada’s mounting 2026 mortgage renewal pressures, the hike arrives at a precarious moment.
Joel Fox, chief operating officer of Ownright, a Toronto-based digital real estate law platform, warned the decision deepens an already prolonged housing downturn.
“A rate hike likely locks us into year-over-year declines in housing activity for the rest of this year and into next, and I don’t see things turning until there’s a rate drop,” Fox said.
His advice to clients approaching renewal was clear, and with the December decision drawing closer, what the BoC’s next decision means for the mortgage market will be watched closely by brokers across the country.
“If you’re renewing in the next year, start early. It’s a good idea to talk to your lender or broker, compare offers and know what your payment will be before the renewal notice shows up,” Fox said.
The Canadian Mortgage Brokers Association of Ontario (CMBA Ontario) formally opposed the decision. President Jessica Rickerby said affordability was the crisis in hand, not a theoretical future one.
“While inflation is a key concern of Ontarians, so is housing affordability. The difference is that affordability is a pressing issue right now, whereas inflation is – at present – a hypothetical,” Rickerby said.
CMBA Ontario cited approximately 5,300 new home sales in the Greater Toronto Area in 2025, a record low and an 81% fall from normal levels, according to the association.
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