Bank of Canada’s 2.50% Call: The Saturday Hint That Flipped the Economists
Nineteen of 34 economists changed their call after the bank's own survey showed inflation expectations rising — and the governor had previewed it days earlier.
After Bank of Canada Governor Tiff Macklem told reporters on Saturday that the bank’s inflation forecasts would likely be revised higher, 19 of the 34 economists in a Reuters poll this week said the bank will raise its overnight rate a quarter point to 2.50% on Wednesday — its first move in a year.
Macklem spoke on Saturday. The bank’s survey was published on Monday. In between, interest-rate futures moved from pricing a 30% chance of an October hike to around three in four. Royce Mendes, head of macro strategy at Desjardins, said the governor’s weekend tone and his own Monday call change came from the same source: the bank’s business outlook and consumer surveys. “So presumably the governor had seen the results before they were published more broadly on Monday,” Mendes told Reuters. “And I would assume that informed his public commentary.”
The survey said inflation expectations “have increased noticeably.” Firms’ average expectations for inflation over the next two years remain elevated, and almost one-quarter of them — a larger share than in the previous quarter — couldn’t say when inflation would return to 2%. Firms facing larger-than-normal cost increases plan to keep passing them to customers, while hiring intentions stay soft. Most of the responses were collected before Canada-U.S. trade talks broke down, which the bank said means the true expectations are likely worse.
The Canadian dollar rose for a seventh straight day on Friday, its longest winning streak since March 2022. It touched 1.3969, its strongest since September 16, and gained 1% on the week — the most since April. Retail sales rose 1.2% in August, with a preliminary 0.7% gain in September, which Desjardins analyst Oskar Stone said points to third-quarter GDP growth of 2%. The 10-year yield climbed 5.1 basis points to 3.838%.
The 15 economists still expecting no move on Wednesday mostly cited a weak economy and subdued inflation pressures, even with oil at $117 a barrel, its first time at that level since May. The poll’s medians have growth slowing to 1.3% this quarter and 1.0% for 2026, with inflation averaging 2.8% this year and 2.3% next.
Chartered-bank prime sits at 4.45%, 2.20 percentage points above the policy rate, and it typically follows the Bank of Canada within a day. On a $500,000 mortgage at today’s lowest variable rate of 3.00%, a quarter-point rise adds about $66 a month. Fixed rates already moved without the bank: the five-year government bond yield is 3.50%, and some lenders have raised five-year fixed rates 10 to 20 basis points in the past month.
The bank’s target range is 1% to 3%. September inflation printed at 3.1%.
