Traders are betting that the Bank of Canada will deliver a rate hike — as early as next month

Before the central bank’s Sept. 2 decision, markets had priced in a 94% chance of another hold. Heading into the next decision on Oct. 28, that near-certainty has evaporated — traders now see the meeting as close to a coin flip, tilted slightly toward a hike as of Thursday, according to BNN Bloomberg. The shift follows the U.S. Federal Reserve’s own move Wednesday, delivering its first rate hike in more than three years to fight inflation south of the border.

Even if the BoC holds again in October, the math for borrowers is already shifting. Bond yields — the benchmark lenders use to price mortgages — have been climbing, and that’s pushing up borrowing costs whether or not the bank moves. Here’s what’s driving the shift, who it hits first and what to do about it now.

What changed in the rate-hike odds this week?

Oil prices tied to the war in Iran are the biggest factor behind the shift, Claire Fan, senior economist at RBC, told BNN Bloomberg. Bond market pricing works as a kind of consensus forecast for what the central bank will do, and right now it’s reflecting worry that high fuel costs will feed into broader inflation the longer they last.

That concern isn’t new. In its own summary of the deliberations behind the September decision, BoC’s governing council said the longer high oil prices persist, the more likely they are to spread into the price of other goods and services. Inflation has been hovering near 3% for several months, though inflation excluding gasoline has stayed closer to 2% — a gap policymakers are watching closely.

Why would a rate hike hit variable-rate borrowers first?

Variable-rate mortgages and lines of credit, including HELOCs, are tied to the prime rate, which moves in step with the Bank of Canada’s policy rate. A hike lands in those payments almost immediately.

In this hypothetical example, a homeowner with a $400,000 variable-rate mortgage amortized over 25 years could see payments rise by roughly $50 to $60 a month for every quarter-point increase in the policy rate. That’s manageable for some household budgets and a real strain for others — especially for anyone who took on a variable mortgage when rates were near the bottom of the cycle.

Why could your fixed mortgage rate rise even without a hike?

Fixed mortgage rates don’t track the Bank of Canada’s policy rate directly — they track bond yields. And the Bank’s own account of its September deliberations confirms financial conditions had already tightened since July, with long-term bond yields moving up globally on concerns about sovereign debt levels and expectations that central banks would need to raise rates to restrain inflation — Canadian yields following suit.

That’s a double-edged sword. Randall Bartlett, deputy chief economist at Desjardins, told BNN that rising yields are effectively doing some of the central bank’s tightening work for it, which gives the Bank ‘a bit of wiggle room’ to stay patient. But that doesn’t mean a break for borrowers — rather, it can be the opposite: fixed rates edging higher at renewal time even if the policy rate never moves.

What are economists actually expecting?

Both Fan and Bartlett expect the BoC to hold for the rest of 2026 and hike in the first quarter of 2027. Bartlett said a re-escalating tariff dispute with the U.S. is working against inflation pressure, since weaker growth prospects give the bank more room to be patient.

Stephen Brown, chief North America economist at Capital Economics, told BNN the bank will “inevitably upgrade its inflation forecasts” for elevated oil prices when it publishes its next outlook in late October. It will also have fresh inflation, labour market and GDP data — plus its own consumer and business surveys, which Brown expects will show weaker confidence and rising short-term inflation expectations — before the Oct. 28 decision. “Our base case is that the bank will not hike in October, though it will likely be a close call,” he said.

What should Canadians do now?

The right move depends on where you sit:

• Renewing in the next six months: Ask your lender for a rate hold now. Most Canadian lenders will guarantee a fixed rate for 90 to 120 days, insuring you against further increases while you shop around.
• Carrying a variable-rate mortgage or HELOC: Stress-test your budget for a quarter- to half-point increase before it happens, not after. If a small move would strain your finances, talk to your lender about locking in part or all of the balance.
• Choosing fixed vs. variable on a new mortgage: Remember that fixed rates can move with bond yields well before the Bank of Canada acts, so waiting for a rate decision to shop for a mortgage isn’t a guaranteed win.
• Building savings: Rising yields are also flowing through to GICs and high-interest savings accounts. For savers, this is the upside of the same trend that’s squeezing borrowers, so it’s worth comparing current rates before renewing a GIC.

The safest assumption right now isn’t whether the BoC will or won’t hike on Oct. 28 — it’s that borrowing costs are already moving regardless. If your mortgage renews soon, lock in a hold this week. If you’re carrying variable debt, run the numbers on a small increase before it lands. And if your renewal is still years away, there’s no need to panic — but it’s worth knowing which way your rate moves, and why, before you’re forced to find out.