Why UBS, Manulife, Oxford Economics and Scotiabank have all moved their forecasts forward — and what the October 19 inflation report could still change.
A Bank of Canada rate hike on October 28 has moved from an outside risk to a base-case forecast at a growing number of major financial institutions, after seven consecutive holds and an inflation rate that has climbed above the central bank’s target. The shift, reported on October 2, 2026, reflects revised calls from UBS Global Research, Manulife Financial, Oxford Economics and Bank of Nova Scotia within a matter of weeks.
The overnight rate has sat at 2.25% since October 2025 — the bottom of the Bank’s estimated neutral range of 2.25% to 3.25%. For most of this year, the market consensus held that the rate would stay there through all of 2026. That consensus has been breaking down as price data has refused to co-operate.
UBS Flips to Two Increases, Starting Next Month
UBS Global Research revised its Canadian outlook this week, with economist Abigail Watt now calling for two successive 25-basis-point increases. The firm had previously argued that no tightening would arrive before next year.
“Our baseline now includes one 25-basis-point hike in October and another in January, followed by a prolonged hold once the policy rate reaches the midpoint of the neutral range,” Watt said.
That path would lift the overnight rate from 2.25% to 2.75% — the midpoint of the neutral band, and the level at which UBS expects the Bank to stop and wait. It is a notably different destination from the one most forecasters were describing at mid-year, when the question was how long the Bank would stay on hold rather than how far it would move up.
How Macklem’s Language Changed the Calculation
UBS traced its revision directly to a change in tone from Governor Tiff Macklem. Following the September 2 hold, Macklem signalled that upside risks to inflation were building and that Canadian businesses appeared to be adapting to the strains of the Canada–US trade dispute.
Watt read that as a narrowing of the Bank’s patience. “That shift suggested the Bank of Canada was becoming less willing to look through above-target headline inflation while waiting for clearer evidence of domestic demand pressure,” she said.
A subsequent speech by Macklem in Halifax strengthened the case for a pre-emptive move, in her view. “Two things probably have to happen if you’re too slow: One is, you’re going to have to raise rates very quickly,” the governor said. “And secondly, you’re probably going to end up having to raise them more than if you moved earlier because things will have gotten more out of hand.”
That framing — act modestly now or sharply later — is the argument several forecasters are now building their calls around. We covered the earlier stage of this turn in our report on how a Bank of Canada rate hike came back into play as Macklem warned on oil.
The 3% CPI Print and the October 19 Inflation Test
Canada’s consumer price index rose 3% year over year in August, a full percentage point above the Bank’s 2% target. UBS projects the September reading will come in at 3.3% when Statistics Canada publishes the figure on October 19 — just nine days before the rate announcement.
That makes the October CPI release the single most consequential data point between now and the decision. A print at or near 3.3% would give the hawkish camp a clean argument; a softer number would hand the Bank cover to extend the hold. Our earlier coverage of Macklem’s rate hike warning as oil pushed inflation to 3% set out how energy costs fed into the August figure.
Manulife, Oxford Economics and Scotiabank Move Their Calls Forward
Manulife Financial has also pulled its timeline forward, and now expects increases in October and December. The firm had previously forecast a hold through 2026 followed by hikes in mid-2027.
“Inflation dynamics are changing,” Dominique Lapointe, global-macro strategist at Manulife, wrote in a report published this week, citing mounting price pressure and a stronger economic backdrop.
Oxford Economics landed in the same place, anticipating October and December increases. Senior economist Michael Davenport had previously called for no movement at all until late 2027 — among the largest revisions in the current round. Bank of Nova Scotia has likewise shifted its call to October.
Where the Major Forecasters Now Stand
| Forecaster | Current call | Previous position |
|---|---|---|
| UBS Global Research | 25 bps in October, 25 bps in January, then prolonged hold | No hikes until 2027 |
| Manulife Financial | Hikes in October and December | Hold through 2026, hikes mid-2027 |
| Oxford Economics | Hikes in October and December | No movement until late 2027 |
| Bank of Nova Scotia | Hike in October | Not specified |
| Royal Bank of Canada | Near-term hold, gradual hiking cycle from early 2027 | Not specified |
RBC’s Dissent: A Close Call, Not a Done Deal
The move is not unanimous. Royal Bank of Canada economists still expect the central bank to leave the policy rate unchanged in the near term, with a gradual tightening cycle beginning in early 2027.
“Incoming data will matter for the October decision, with communications from the BoC continuing to suggest it will be a close call,” said RBC assistant chief economist Nathan Janzen and senior economist Claire Fan.
That caveat matters. Even among the firms now penciling in a hike, the conviction rests heavily on data that has not yet been published, and on a governor who has so far declined to pre-commit to any particular path.
What a Bank of Canada Rate Hike Would Mean for Borrowers
For households, the mechanics of a 25-basis-point move are straightforward, even if the timing is not. Here is where the effects land first:
- Variable-rate mortgages: Payments or amortizations tied to a lender’s prime rate adjust almost immediately when the overnight rate moves, since prime typically tracks the Bank’s policy rate.
- Home equity lines of credit: HELOCs are also priced off prime, so the cost of carrying a balance rises in step with any increase.
- Fixed-rate mortgages: These are priced off bond yields rather than the overnight rate directly, which means much of the repricing happens in advance, as markets absorb changing expectations.
- Renewals: Borrowers coming up for renewal in the months ahead are negotiating into a market where lenders are already pricing credit against a possible tightening cycle, not just a single move.
- Savers and deposit products: A higher policy rate generally flows through to rates on savings accounts and short-term deposit products, though timing varies by institution.
Two hikes totalling 50 basis points would still leave the overnight rate at 2.75% — historically moderate, and only at the midpoint of the Bank’s own neutral estimate. The significance lies less in the absolute level than in the direction: it would be the first upward move since the Bank settled at 2.25% a year ago, and it would end a holding pattern that lenders, builders and borrowers had largely priced as permanent for 2026.
The Calendar Between Now and October 28
Two fixed dates now frame the debate. Statistics Canada releases September CPI on October 19, and the Bank of Canada announces its decision on October 28, 2026. Whether the hawkish camp or RBC’s hold call proves correct will be settled largely in those nine days.
Broader domestic-demand signals will also feed into the Bank’s reading. Our summary of the latest Statistics Canada findings on slowing population growth covers one of the structural inputs shaping that side of the picture.
Forecasts described here are the published projections of private-sector economists, not decisions by the Bank of Canada, and they can change with incoming data. Readers making borrowing or renewal decisions should consult a licensed professional about their own circumstances.
Frequently Asked Questions
What is the Bank of Canada’s overnight rate right now?
It has been held at 2.25% since October 2025, following seven consecutive decisions to leave it unchanged.
What is the “neutral range” forecasters keep referring to?
The Bank of Canada estimates its neutral range at 2.25% to 3.25%. The current rate sits at the lower end; two 25-basis-point hikes would bring it to 2.75%, the midpoint.
When is the next rate decision?
October 28, 2026. The September consumer price index is scheduled for release on October 19, nine days earlier.
Does a forecast shift mean a hike is confirmed?
No. RBC still expects a hold in the near term, and its economists describe the October decision as a close call that will depend on incoming data.
How high is inflation compared with the target?
Canada’s CPI rose 3% year over year in August, against a 2% target. UBS projects the September reading will come in at 3.3%.
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