UBS Sees Two Bank of Canada Rate Hikes Ahead

UBS, a global investment bank, has revised its forecast for the Bank of Canada's policy rate. In a recent research note, UBS Global Research now expects two rate hikes by 0.25 percentage points - once in October and again in January 2027.

This change is not due to any sudden shift in the Canadian economy but rather because the central bank's risk balance has changed. Analysts believe that the Bank of Canada is placing more weight on inflation risks tied to the Middle East, such as higher energy costs spilling into broader prices, and less weight on downside risks from trade.

UBS analysts also point to recent comments from Governor Tiff Macklem as a sign that policymakers may be less willing to 'look through' above-target inflation while businesses continue to operate normally. The next policy meeting is scheduled for October 28, and markets tend to adjust pricing based on the rate path they expect beforehand.

As a result of this revised forecast, borrowing costs could rise before the official rate hike. This means that banks may pass on higher funding costs to customers through prime-rate-linked products like variable-rate mortgages and home-equity lines of credit. Fixed-rate mortgage quotes can also shift due to their close tie to government bond yields.