The Bank of Canada's latest survey of market participants points to a clear path for interest rates: two more quarter-point hikes, taking the policy rate from 2.25% to 2.75% by March 2027, and then holding it there through the end of 2028. The survey, conducted from September 23 to October 1 and released Monday, offers a window into what professional forecasters and traders expect for the central bank's next moves.
The median projection in the third-quarter Market Participants Survey shows the policy rate reaching 2.50% in December and 2.75% by March. That level is then expected to persist for years, a notable shift from earlier expectations of a quicker return to lower rates.
Why the Bank of Canada is still hiking
The timing is significant because the central bank already raised rates by 0.25 percentage points last month—its first hike since July 2023. That move reflected ongoing wariness about inflation, even as price pressures have cooled from their peaks.
Despite the hikes, survey respondents still see inflation drifting back toward the Bank's 2% target. They project inflation at 2.0% in 2027, down from 3.0% at the end of 2026. Economic growth is expected to be modest but slightly firmer than in the previous survey, suggesting the economy can absorb higher borrowing costs without tipping into a deep downturn.
The biggest wildcard, according to participants, is the United States. About 88% of those surveyed flagged escalating trade tensions as a downside risk—and a potential de-escalation as an upside. That helps explain why their estimated recession risk rises over longer horizons, as trade policy uncertainty clouds the outlook.
What this means for your borrowing costs
For everyday Canadians, the policy rate is the benchmark for overnight borrowing between banks. Changes to it usually feed into banks' prime rates and other reference rates used to price floating-rate loans. That's the plumbing behind why variable-rate mortgages and home equity lines of credit (HELOCs) tend to reprice when the central bank moves—and why relief often doesn't arrive until markets are confident cuts are coming.
What stands out in this survey is the "long hold." If lenders and markets expect 2.75% to stick through 2028, renewals and new variable-rate borrowing can be priced as if today's higher payments are not just a short-term phase, even if inflation is expected to drift back toward target. That means borrowers with variable-rate debt may need to plan for a longer period of elevated payments than they might have hoped.
For those considering fixed-rate mortgages, the survey's expectations could also influence the bond yields that underpin those rates. A higher-for-longer policy path typically keeps longer-term yields elevated, which can translate into higher fixed mortgage rates as well.
Investor implications
For investors, the survey reinforces a picture of an economy that is growing modestly but still dealing with inflation above target. That combination often supports sectors like financials, which benefit from wider interest rate margins, while putting pressure on rate-sensitive areas like real estate and utilities.
The survey also highlights the importance of US trade policy. With nearly nine in ten participants citing trade tensions as a downside risk, any escalation could hit Canadian exports and business investment, potentially forcing the Bank of Canada to rethink its path. Conversely, a de-escalation could boost growth and possibly allow the central bank to ease sooner than currently expected.
Investors will be watching upcoming data releases, including jobs reports and inflation readings, for clues on whether the Bank of Canada sticks to the projected path. Recent weak jobs data have already cooled some expectations for a December hike, suggesting the survey's median path is not set in stone.
Meanwhile, the broader picture of inflation and interest rates remains a global theme. In the US, inflation expectations have held steady, while other central banks, like Mexico's, are dealing with their own inflation pressures. The Bank of Canada's decisions will also be watched in the context of debates about whether it is overstating inflation risks.
For now, the message from the survey is clear: rates are expected to go a bit higher, and then stay there. That's a reality borrowers and investors alike will need to factor into their plans.
