HighIV Macro Policy & Sovereign Debt27 October 2026, Tuesday
Bank of Canada readies its first hike in a year
The Bank of Canada is preparing to lift its policy rate from 2.25% to 2.50% on 28 October. In the Reuters poll taken on 21-23 October, 56% of 34 respondents expect a hike, and September inflation of 3.1% breached the top of the target band.
The bank's own records put the overnight rate target at 2.25%, last changed by a 25 basis point cut on 29 October 2025. A hike on 28 October would therefore be the first decision to turn the direction around. In the Reuters poll of 34 respondents conducted on 21-23 October, 56% expect a 25 basis point increase. Futures pricing for an October move rose from about 30% to three in four, repricing after Governor Tiff Macklem's remarks to reporters on Saturday. The decision arrives alongside a Monetary Policy Report carrying updated inflation and growth projections.
Oil-driven price pressure built the case. September inflation of 3.1% pushed above the bank's 1-3% target band, with the increase concentrated in energy and shelter. TD Securities disagrees and expects the committee to hold at 2.25%; the same house argues the market is pricing roughly 20 basis points of tightening, that hikes will slip into December and January, and that the terminal rate will settle near 2.75%. Rabobank also leans towards a hold, citing mixed labour data and soft demand.
The real information in the decision is the regime, not the direction. A decision that closes the easing cycle declares that the energy shock is no longer treated as temporary and that the anchoring of inflation expectations is in question. Turning a rate untouched for a year back upwards passes borrowing costs to households and provincial budgets at the same time. The next decision comes on 9 December, which means the October step will be read together with December rather than on its own.
Talay assessment
Bottom line
This reads less like a rate step than a statement of regime. With the last move a cut on 29 October 2025, a first increase would mean giving up on treating energy-driven inflation as temporary. Because the market prices three-in-four odds, the surprise risk lies on the side of a hold, and the calls from TD and Rabobank feed that risk. The decisive element is the 2027 inflation path in the Monetary Policy Report.
Likely effects
- Canadian bond yieldsUncertainWeeks
With three-in-four odds already priced, front-end yields will be set by the room the report leaves for December rather than by the hike itself.
- Canadian dollarPositiveWeeks
With the Fed on hold on 28 October, a Canadian hike narrows the rate gap in the currency's favour; a hold brings a quick slide instead.
- Household debt burdenNegative1–6 months
In a market dominated by variable-rate mortgages, a change of direction shows up quickly as higher payments on repricing loans.
- Commodity exporter currenciesUncertain1–6 months
A central bank that treats an oil shock as grounds for tightening lifts the expectation of similar moves in economies built the same way.
Possibilities, ranked
- 1A 25 basis point hike65%
The committee lifts the rate to 2.50%, the report notes energy pressure spreading into core and leaves the door open for December.
Watch: The core inflation wording and 2027 path in the 28 October statement
- 2Hawkish hold30%
The rate stays at 2.25%, the text signals readiness to move and pricing shifts towards December.
Watch: An explicit reference to the 9 December meeting in the statement
- 3A 50 basis point hike5%
The committee cites deteriorating inflation expectations and goes to 2.75% in one step.
Watch: A 2027 inflation forecast raised above 3% in the Monetary Policy Report
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Expected policy rate▲ 2.50%
- September inflation▼ 3.1%
- October hike odds▲ ~75%