Swap Odds of a Bank of Canada Hike Rise to About 80% Before the 28 October Decision
The Bank of Canada's 2.25% policy rate faces its 28 October decision as swap-market odds of a hike rise to about 80%, up from about 35%.
The Bank of Canada is scheduled to announce its policy interest rate and release its Monetary Policy Report on 28 October 2026. The policy rate has been 2.25% since October 2025, and the Governing Council held it there again on 2 September. As of the time of writing on 28 October, no decision had been published.
Analysts went into the announcement split. The Globe and Mail, citing Bloomberg data, reported that interest rate swap markets had moved from about a 35% chance of a hike to about 80%. Its reporter Mark Rendell wrote that most analysts think the bank should not raise rates, but that most expect it to.
Oil Keeps Headline Inflation Near 3%
The Bank's 2 September statement said the Middle East conflict had kept energy prices high, linking this to the conflict in Iran and curtailed shipments through the Strait of Hormuz. Gasoline kept CPI inflation near 3%. Excluding gasoline, inflation was 2.2% in July, and core measures stayed close to 2%.
The Bank has been looking through the direct effect of higher oil prices while watching for spillovers into other prices. It saw little evidence of spillover so far, but said the longer oil prices stay high, the greater the risk that energy costs become persistent inflation, and that upside risks to its inflation forecast had increased.
The April statement framed the path differently. CPI inflation rose from 1.8% in February to 2.4% in March, driven by gasoline prices. The Bank expected inflation to peak around 3% in April and return to its 2% target by early next year, if oil prices fell as it assumed.
Growth Data and Tariffs Cut the Other Way
The September statement put second-quarter GDP growth at 3.3%, after weak growth in the first quarter, and described the rebound as broad-based. It said recent data had come in largely in line with the July forecast. It named new U.S. tariffs and trade uncertainty as risks to the sustainability of the rebound.
The Bank's April projections put GDP growth at 1.2% in 2026 and 1.6% in 2027. They assumed oil would fall from about US$90 a barrel in the second quarter to about US$75 by mid-2027. The April statement said unemployment remained in the 6.5% to 7% range.
The April statement also said that if oil prices stayed elevated, the risk of broader inflation would grow and the Bank might need consecutive rate increases. Its base case then was a policy rate near current levels, with any changes likely to be small. The September statement said the Governing Council was prepared to adjust policy as needed.
Swap Odds Show Expectations, Not a Market Reaction
Swap-market odds of a hike moved, from about 35% to about 80%, as reported by The Globe and Mail. The announcement had not been published when that reporting was done.
The swap move describes expectations going into the announcement, not the decision itself. Today's decision sets the target for the overnight rate, which the Bank's statements link to oil, inflation and tariffs.
The April statement said a policy rate near current levels was appropriate in its base case, and that significant new U.S. trade restrictions could prompt further rate cuts. Both scenarios were conditional on how oil and tariffs developed.
“Gasoline has kept inflation near 3%, and the Bank is watching whether energy costs spread into other prices.”
What Follows Today on the Bank's Calendar
The Bank's October posts page lists the rate announcement and Monetary Policy Report for 28 October. It lists a webcast of the John Kuszczak Memorial Lecture and says the Bank will host its annual economic conference on 29 October. The third-quarter Business Outlook Survey and Canadian Survey of Consumer Expectations are dated 19 October.
The report's new projections had not been published at the time of writing.
