Royal Bank of Canada (RBC) economist Abbey Xu expects the Bank of Canada to keep its policy rate at 2.25% through 2026, despite rising market bets on an October increase.
Reuters reported that market expectations for the Oct. 28 decision shifted sharply: interest-rate swaps implied about an 80% chance of an increase on Oct. 19, versus 30% on Oct. 16. RBC’s forecast instead calls for gradual increases beginning in 2027.
Statistics Canada said consumer prices rose 3.1% from a year earlier in September, after a 3.0% increase in August. Gasoline prices climbed 27.8% over the year, but the annual increase excluding gasoline slowed to 2.2% from 2.4%. The central bank’s CPI-trim and CPI-median measures stood at 1.8% and 1.9%, respectively.
Xu said the figures showed little sign so far of fuel costs pushing up prices more broadly. RBC said persistently high oil prices could lift inflation expectations and spread to other prices. It also sees a greater risk of an earlier rate move following recent central bank comments.
The Bank of Canada’s third-quarter business survey showed a possible path for higher costs to reach consumers. Roughly half of firms planned to charge customers for some or all increases tied to the Middle East conflict and tariffs. Some sought to rebuild profit margins after earlier cost pressures, while high oil prices and strong U.S. demand improved the sales outlook for some exporters.
The bank conducted about three-quarters of the survey interviews before Canada-U.S. trade talks broke down and new Canadian countertariffs were announced.
Labor conditions give policymakers another consideration. Statistics Canada said employment fell by 68,000 in September and the unemployment rate rose to 6.5%. RBC said the weaker job market and more expensive fixed-rate borrowing could give the central bank time to wait. At its Sept. 2 meeting, the bank left its overnight rate target at 2.25%.
The Bank of Canada is scheduled to announce its next decision and release its Monetary Policy Report at 9:45 a.m. ET on Oct. 28. Statistics Canada is set to publish October inflation figures on Nov. 16.
