What is the Bank of Canada's overnight rate?

The overnight rate is the interest rate at which major Canadian banks borrow and lend to each other for one day. The Bank of Canada sets a target for this rate, and it influences nearly all other borrowing costs in the economy, from mortgages to business loans.

Why would the Bank of Canada raise rates when inflation is only slightly above target?

Central banks worry as much about expectations as about current numbers. The bank's business outlook survey showed sharply rising inflation expectations, which can become self-filling if businesses raise prices in anticipation. Economists polled by Reuters said the bank wants to pre-empt that cycle with an early hike.

How would a rate hike affect Canadian mortgage holders?

Variable-rate mortgage holders would see monthly payments rise quickly, since those rates track the central bank's moves. People renewing fixed-rate mortgages would also face higher rates than when they last locked in, as fixed rates reflect where lenders expect rates to go.

When is the Bank of Canada's next decision after October 28?

The Reuters poll found a majority of economists expect one more quarter-point hike by the end of March, alongside continued quarterly inflation forecasts. The bank sets rates at scheduled meetings throughout the year, with the October decision due on October 28.

What is the Bank of Canada's inflation target?

The bank targets a range of 1% to 3% inflation, with 2% as the midpoint goal. September inflation of 3.1% sits just above that range — close enough that some economists thought the bank would hold, but high enough, combined with rising expectations, that most now expect a hike.

Bank of Canada Rate Hike October 28: 2.50% Expected

Background: how Canada's central bank works

The Bank of Canada is Canada's central bank, and its main tool for keeping the economy stable is the overnight interest rate — the rate at which banks lend to each other for very short periods. That rate ripples through the entire economy: it influences mortgage rates, car loans, business borrowing and savings returns. The bank aims to keep inflation — the pace at which prices rise — between 1% and 3%, with 2% as the sweet spot. When inflation runs hot, the bank typically raises rates to cool spending; when the economy is weak, it cuts them to encourage borrowing and investment.

The Bank of Canada has held its overnight rate at 2.25% for the past year, resisting any change through months of trade turbulence and political pressure. That patience may now be running out. A Reuters poll of economists conducted October 21-23 found that 19 of 34 economists — 56% — expect the bank to raise its rate by 25 basis points to 2.50% when it meets on October 28. It would be the bank's first rate move in a year, and a sharp reversal from the previous poll, when 80% of economists expected the bank to hold rates steady until the end of 2026.

What happened this week

The shift in expectations came after two developments. First, inflation rose to 3.1% in September, barely overshooting the top of the bank's 1%-to-3% target range. That alone might not have forced the bank's hand. But the central bank's latest business outlook survey showed sharply rising inflation expectations among businesses — a warning sign that companies are planning for higher prices and may set them accordingly, creating a self-fulfilling cycle that central bankers work hard to break.

Second, Bank of Canada Governor Tiff Macklem made public remarks over the weekend that markets interpreted as a signal that a rate rise is coming. Interest-rate futures — financial contracts that reflect investors' bets on where rates are headed — moved from pricing in only a 30% chance of an October hike to around a three-in-four likelihood. Many economists changed their forecasts from a hold to a hike during the week, citing Macklem's remarks and the survey results.

"What changed the tone in the governor's public comments on the weekend and what changed our view on Monday is the same source, and that is the responses from the BoC's business outlook and consumer surveys," said Royce Mendes, managing director and head of macro strategy at Desjardins. "The survey responses... suggest there are more serious inflationary pressures coming."

Why it matters

A rate hike would land at a delicate moment for the Canadian economy. Canada's trade talks with the United States broke down in August, and the United States has imposed a raft of tariffs on Canadian imports. The Reuters poll notes that inflation expectations rose sharply in the run-up to that breakdown, suggesting that businesses are worried about higher import costs passing through to consumers. Raising rates into a trade dispute is a difficult balancing act: higher borrowing costs could cool the housing market and consumer spending at exactly the moment exporters are struggling with tariffs.

For households, the impact is direct. Canada has a large share of variable-rate mortgages, where monthly payments move quickly when the central bank changes rates. Even fixed-rate borrowers renewing their mortgages this year would face higher rates than the last time they locked in. For businesses, a hike raises the cost of expansion and hiring. For the Canadian dollar, higher rates could provide support — but they also slow economic growth, which is why central bankers describe rate decisions as choosing the least bad option.

Economists also noted how unusual the reversal has been. In the previous Reuters poll, 80% of respondents expected the bank to hold its rate at 2.25% until the end of 2026, and two-thirds did not see a hike until at least March 2027. The speed of the turnaround — from near-certain hold to likely hike within weeks — shows how quickly shifting inflation expectations can change a central bank's calculus. If the October hike goes ahead, attention will immediately turn to the bank's December decision and its quarterly Monetary Policy Report, which could set the tone for the March meeting that most economists now see as the next step.

Key facts

19 of 34 economists polled by Reuters (56%) expect a 25-basis-point hike to 2.50% on October 28; the previous poll had 80% expecting no move until the end of 2026.
Inflation reached 3.1% in September, just above the Bank of Canada's 1%-to-3% target range.
The bank's business outlook survey showed sharply rising inflation expectations ahead of the breakdown in US trade talks.
Interest-rate futures moved from a 30% to roughly a 75% chance of an October hike after Governor Tiff Macklem's weekend remarks.
The poll also found a majority expecting one more hike by the end of March to keep inflation expectations in check.
The rate has been at 2.25% for a year; a hike would be the bank's first move in twelve months.

What happens next

All eyes turn to October 28, when the Bank of Canada announces its decision alongside its quarterly inflation forecasts. Governor Macklem's remarks suggested those forecasts are likely to be revised higher, which would strengthen the case for a hike. The Reuters poll also found a majority of economists expecting one more quarter-point increase by the end of March, meaning the October move could be the start of a tightening cycle rather than a one-off adjustment.

Markets will also watch the bank's language about the trade standoff. Canada's economy leans heavily on exports to the United States, and the tariff dispute — combined with Prime Minister Mark Carney's warning that Canada is in no rush to sign a deal — means the central bank must weigh inflation risks against growth risks at every meeting. If the October hike happens, economists will be looking for signs of whether the bank plans to pause afterward or keep tightening into 2027.

To understand the wider inflation picture, see our explainers on what inflation is, the US inflation picture and Federal Reserve policy, and Australia's central bank stance. For the global growth outlook, see our coverage of the IMF's latest forecasts.

Sources: Reuters, Kitco News, Oct 2026.

Bank of Canada Expected to Raise Interest Rates to 2.50% on October 28

Background: how Canada's central bank works

What happened this week

Why it matters

Key facts

What happens next

Frequently asked questions