The Bank of Canada raised its policy rate this morning by a quarter point, to 2.5 per cent. It is the first increase since July 2023, ending seven straight holds at 2.25 per cent. The bond market saw it coming, so did a Reuters poll of economists last week, and if you carry a variable-rate mortgage you will see it on your next statement.
The sentence in the statement that matters most is this one: "There could be a need to increase the policy rate further, but given uncertainties, we will proceed carefully." The Bank is not promising another hike, but it has stopped talking about cuts altogether, and Governor Macklem said that risks to inflation had increased and there was "less scope for monetary accommodation." Anyone who spent 2026 waiting for lower rates before renewing, buying or selling now has to rethink.
Why the Bank moved when core inflation is near 2 per cent
The reason is oil. Brent crude has been trading around US$110 a barrel because of the war in the Middle East, against the US$75 the Bank assumed in its July forecast, and gasoline was up 27.8 per cent year over year in September (Statistics Canada). Headline inflation came in at 3.1 per cent, above the Bank's 1 to 3 per cent range, and it has sat near 3 per cent since April. Strip out gasoline and inflation was 2.2 per cent, with the core measures close to 2, which is the case made by economists who wanted another hold. The Bank is looking six to twelve months out, and the longer energy stays expensive the more likely trucking firms, grocers and landlords pass the cost along. The new Monetary Policy Report has inflation reaching about 3.5 per cent by year-end, averaging 3 per cent through 2027, and only getting back to 2 per cent by the middle of 2028. Today's move is meant to shorten that stretch.
What a quarter point costs on a variable mortgage
Prime at the big banks is 4.45 per cent as I write this. Expect it to go to 4.70 per cent, most likely effective Thursday. On a $600,000 adjustable-rate mortgage at prime minus 0.80 with 25 years left, the payment goes from about $3,043 a month to about $3,124, an increase of roughly $80. Nobody sells a house over $80 a month. Stacked on top of a renewal from a 2021 rate, though, it is the kind of number that makes a family in Wismer decide the four-bedroom move is a 2028 conversation rather than a 2027 one. If your variable mortgage has a fixed payment, more of each payment now goes to interest and less to principal.
If you are on a fixed rate, today changed nothing on your statement and very little on the rate sheet either. Five-year fixed mortgages are priced off the five-year Government of Canada bond, and that yield rose about 20 basis points in the month leading into this decision (Canadian Mortgage Professional, October 9). Lenders repriced weeks ago. The question for fixed borrowers is the next six weeks: the Bank meets again on December 9, and the bond market will spend November deciding whether "proceed carefully" means one more move or none.
What it does to our market
I would push back on the gloom a little. TRREB's September numbers had GTA sales down 9 per cent from a year earlier, but new listings were down 14.4 per cent and active listings down 9.3 per cent, and prices rose about 1.3 per cent from August even while sitting below last year's levels. York Region finished September with roughly five months of inventory, which is a buyer's market on paper and a balanced one on the streets I work, where a well-kept house in Unionville still draws three or four showings its first weekend while the tired ones sit. A quarter point does not change that split.
What it changes is the story buyers have been telling themselves since spring, that waiting costs nothing because rates would be lower by the time they were ready. The Bank has now said otherwise. Over the years that kind of message has pulled as many fence-sitters into the market as out of it, because waiting suddenly has a price. The Bank's own report expects housing to stay weak into next year, and nationally I would not argue. Locally, scarce listings and soft sales add up to a stalemate rather than a slide, and a stalemate tends to break toward whichever side blinks first. For sellers that argues for pricing to the last sixty days of sales and not to 2022, because the buyers who remain are well qualified and in no hurry.
The one thing I would do today is call your lender if you have a renewal anywhere in the next twelve months and ask for a rate hold. It costs nothing and buys up to 120 days of protection in a market where the five-year bond can move 20 points in a month. A pre-approval is stress-tested at a rate well above what you actually pay, so nobody who qualified last week stopped qualifying this morning. What changed is the monthly payment, and that number is worth seeing on paper before deciding anything. I will be reading the December 9 decision as closely as anyone, and if you would like to go through your own numbers before then, you know where to find me.