Bank of Canada Rate Hike Odds Rise Ahead of Key Decision

The Bank of Canada's string of interest rate holds may be coming to an end. Traders are increasingly betting that the central bank will raise rates as early as next month, although many economists remain unconvinced.

According to LSEG Data & Analytics, the odds of a hold at the Bank of Canada's next decision on October 28 have flipped from 94% in favor of a hold before the last rate decision. Now, markets see it as a coin flip, with odds narrowly in favor of a hike.

Rising global energy prices tied to the war in Iran are likely behind this shift in market expectations, said Claire Fan, senior economist at RBC. She noted that oil prices have been staying higher for longer than expected, which is causing concern about inflation.

While some economists expect a rate hike in October, others believe the Bank of Canada will remain on the sidelines until 2027. Randall Bartlett, deputy chief economist at Desjardins, said rising bond yields are taking some pressure off the central bank to raise rates.