- Traders are increasingly betting that the Bank of Canada could end its string of interest rate holds and deliver a hike as early as next month.
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Bank → bet → month
While many economists remain unconvinced that the central bank will raise the cost of borrowing this year, concerns that inflation could become a more persistent thorn than first thought have some pencilling in a tightening cycle to start in early 2027.
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inflation → remain → 2027
The U.S. Federal Reserve broke its own stand-pat stance and delivered the United States’ first rate hike in more than three years on Wednesday in an effort to rein in inflationary pressures bubbling up south of the border.
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Reserve → break → border
The Bank of Canada has sat comfortably on the sidelines for nearly a year now, content to leave its policy rate unchanged at 2.25 per cent as it waits to see how the economy and inflation will adjust to a series of shocks.
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economy → sit → shocks
In the days leading up to each of the Bank of Canada’s six meetings so far in 2026, financial market odds have overwhelmingly been in favour of rate holds.
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odds → lead → holds
Before the central bank’s Sept. 2 decision to leave the policy rate unchanged, odds of a hold were pegged at 94 per cent, according to LSEG Data & Analytics.
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odds → leave → Data
With over a month to go until the Bank of Canada’s next decision on Oct. 28, markets now see that meeting as a coin flip.
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markets → go → flip
Odds have fluctuated sharply over the past few weeks, but stood narrowly in favour of a hike as of Thursday afternoon.
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Odds → fluctuate → afternoon
Claire Fan, senior economist at RBC, said bond market pricing can be viewed as something of a consensus expectation for central bank decisions and also as a barometer for how market participants are viewing fresh economic data.
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participants → say → data
Odds had already been titled in favour of a Fed hike but soared after the U.S. inflation data release a few days earlier, she noted.
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she → title → release
In the Bank of Canada’s case, the shift in odds toward a possible October hike are likely a reflection of persistently high global energy prices tied to the war in Iran, Fan said.
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Fan → tie → Iran
The Bank of Canada’s governing council was worried late last month that oil prices were staying higher for longer, according to Wednesday’s release of the summary of deliberations that led to its Sept. 2 rate decision.
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that → govern → decision
While there have so far been few signs outside of airfares that high fuel costs are spreading beyond the gas pumps, the central bank’s top decisionmakers agreed that the longer prices remain high, the greater the risk to inflation.
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prices → spread → inflation
“If there’s one thing that’s really causing the pricing of the October meeting … it’s oil prices,” Fan said.
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Fan → ’ → meeting
Market expectations for future Bank of Canada hikes are also reflected in longer-term bond yields.
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expectations → reflect → yields
Governing council also noted rising global bond yields in the summary of deliberations.
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council → govern → deliberations
Much of those recent increases have been tied to concerns over U.S. sovereign debt, though monetary policymakers noted some spillover into Government of Canada bonds, too.
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policymakers → tie → bonds
When market expectations turn toward rate hikes, bond yields rise in turn.
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yields → turn → turn
Fan said that reflects markets “pricing in” some of the expected tightening from the Bank of Canada.
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markets → say → Canada
Lenders use bond yields as benchmarks for mortgages and other long-term consumer loans.
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Lenders → use → mortgages
Because rising bond yields make borrowing more expensive for Canadians, that can also take some of the pressure off the central bank to raise rates, said Randall Bartlett, deputy chief economist at Desjardins.
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Bartlett → rise → Desjardins
“In a sense, it does provide a bit of wiggle room for the bank in a more elevated inflation environment because some of the tightening of financial conditions is being done for it,” he said.
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he → provide → it
Both Bartlett and Fan said they expect the Bank of Canada will remain on the sidelines for the rest of the year before delivering a rate hike in the first quarter of 2027.
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Bank → say → 2027
Bartlett said that while inflation risks are rising, so too are threats to growth from a re-escalating tariff dispute with the United States.
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threats → say → States
Weaker growth prospects help take some of the steam out of inflation, giving the central bank the ability to be patient before adjusting the policy rate.
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prospects → help → rate
Stephen Brown, chief North America economist at Capital Economics, said in a note to clients Thursday that the Bank of Canada will “inevitably upgrade its inflation forecasts” to account for elevated oil price projections when it publishes its quarterly updated outlook at the end of next month.
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it → say → month
Brown noted the central bank will also get a look at additional data for inflation, the labour market and gross domestic product before its next rate decision.
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bank → note → decision
The bank will also release its own surveys of Canadian consumers and businesses, which Brown said he expects will show deteriorating confidence in the economy and rises in short-term inflation expectations.
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he → release → expectations
“Our base case is that the bank will not hike in October, though it will likely be a close call,” he said.
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he → hike → October
This report by The Canadian Press was first published Sept. 18, 2026.
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report → publish → Press
The Aporia
