Bank of Canada rate outlook points to split October decision
Canada's next central bank decision is drawing unusually divided expectations ahead of the Bank of Canada's October 28 rate announcement. Markets are pricing in a quarter-point increase after inflation moved back above 3%, but some mortgage analysts argue underlying price pressures remain softer once gasoline is excluded.
Highlights
- Markets now price 80% odds of a Bank of Canada hike in October, ending the pause that kept the key rate at 2.25% since September 2.
- September headline inflation rose to 3.1% from 3.0%, but gasoline prices—up 27.8% year-on-year—drove most of the increase.
- Excluding gasoline, inflation is 2.2%, fueling debate among economists and splitting expectations over the Bank of Canada's next move.
October decision outlook divides markets
As reported by MoneySense, investors are increasingly betting the Bank of Canada will end the pause that has kept its key rate at 2.25% since September 2. The benchmark has remained at that level since it was cut from 2.50% in October 2025, and several economists now see growing odds of a 0.25% increase at the next decision.Expectations for a hike have strengthened as inflation returns above the 3% mark and energy prices stay elevated during the war in Iran. The article says markets are assigning roughly 80% odds to a rate increase, helping drive a recent rise in bond yields.
Clay Jarvis, a mortgage expert at Ratehub.ca, takes a different view and says the case for tighter policy looks less convincing than markets suggest. He told MoneySense that analysts remain split on whether the Bank should raise the overnight rate and said it is difficult to see a clear path to an increase at this stage.
Inflation mix shapes policy debate
September inflation data is central to the disagreement over the Bank's next move. Statistics Canada figures cited in the article show headline inflation climbed to 3.1% in September from 3.0% in August.However, gasoline appears to account for much of that increase, with gas prices up 27.8% from a year earlier. Excluding gasoline price gains, inflation slows to 2.2%, a reading that may support the argument for holding rates steady rather than responding to energy-driven price pressure.
In our earlier article on Mario Draghi’s warning about the policy trade-off between inflation control and long-term growth, we explained why central banks may need to keep rates no higher than necessary to restore price stability, to avoid unnecessarily damaging investment and productivity. We also noted that when markets are unsure how policymakers will react to inflation or supply shocks, a wider range of expected rate paths can be priced in—pushing borrowing costs up and amplifying volatility through expectations.
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