Canada faces rising interest rate pressure as BMO pushes for stronger business financing

ASM, Philippine Canadian Inquirer
October 22, 2026

OTTAWA, Canada — Canada is facing growing pressure over borrowing costs as economists increasingly expect the Bank of Canada to raise interest rates next week, even as major lenders call for greater access to financing to support the country’s economic expansion.

The developments come amid higher inflation, a struggling housing market and the federal government’s plans to invest billions of dollars in defence and infrastructure.

The Bank of Canada has maintained its benchmark interest rate at 2.25 per cent since October 2025, but expectations are shifting ahead of its next policy announcement on October 28.

Bank of Montreal (BMO), RBC Dominion Securities and Desjardins Group have reportedly revised their forecasts in favour of a rate increase. 

Meanwhile, Bloomberg data cited by CBC News showed traders pricing in an 87 per cent probability of a quarter-percentage-point hike, up from 70 per cent earlier in the week.

The growing expectations follow Statistics Canada’s latest inflation report, which showed consumer prices rising 3.1 per cent annually in September, compared with 3.0 per cent in August.

Higher gasoline prices were the main driver, increasing 27.8 per cent from a year earlier. Excluding gasoline, inflation eased to 2.2 per cent, suggesting that price pressures have not spread evenly throughout the economy.

The Bank of Canada’s latest business outlook survey also found that companies remain concerned about rising operating costs linked to energy prices and trade tensions. Roughly half of surveyed firms facing unusually high cost increases indicated plans to pass some or all of those expenses to customers.

While the central bank has not announced a rate increase, the prospect of higher borrowing costs is already raising concerns in Canada’s housing market.

Mortgage and real estate experts interviewed by CBC News warned that higher rates could discourage homebuyers, increase payments on variable-rate mortgages and place further pressure on property prices.

The Canadian Real Estate Association (CREA) has already lowered its forecast for national home sales, expecting 444,530 properties to change hands in 2026, a 5.2 per cent decline from last year.

CREA cited higher fixed mortgage rates and uncertainty surrounding future interest rate decisions as factors affecting buyer confidence

In an interview with The Globe and Mail, White said clearer government procurement schedules, stronger contract visibility and greater certainty around exports could encourage banks and investors to provide capital.

He also identified government-backed loan guarantees and financial risk-sharing arrangements as ways to support businesses that struggle to secure funding.

“Capital will go where it’s welcome, and if it sees a return,” White said.

BMO announced on October 21 that it is strengthening its defence financing strategy, including appointing Michael Bonner as enterprise chair for the Canadian defence sector.

The initiative builds on the bank’s commitment to mobilize up to $70 billion over the next decade across industries critical to Canada’s economic security, including defence.

BMO also estimates that Canada’s commitment to increase defence and security spending to five per cent of gross domestic product by 2035 could generate approximately $150 billion in annual economic impact by that year.

The expansion comes as the federal government plans substantial investments in military procurement and infrastructure, creating opportunities for Canadian suppliers and manufacturers.

However, the possibility of higher interest rates adds another consideration for businesses seeking financing. A rate increase could make some forms of borrowing more expensive, even as government spending creates opportunities for expansion.

For Canadian households, the more immediate concern is the potential effect on mortgages and other borrowing costs.

The Bank of Canada’s October 28 decision will determine whether the benchmark rate remains at 2.25 per cent or rises for the first time since July 2023. The central bank is also scheduled to release its updated Monetary Policy Report that day.