For much of this year, markets have been focused on how quickly interest rates can fall. But a quieter conversation is starting to take shape, one that’s less about how much lower rates will fall and more about when they might start rising again.
The latest forecasts from Canada’s major banks show that views remain divided. While they agree there will be no modest rate cuts by the end of 2025, some now believe the Bank of Canada could start raising rates again in 2026 as inflation stickiness and global risks persist.
The bank’s base interest rate is currently 2.50%, down by half from last year’s peak of 5%. But what happens after 2025 suddenly looks less certain.
Forecasts diverge among big banks
RBC has become more dovish than its previous forecast and now expects the policy rate to remain at around 2.25% until 2026, 50 basis points lower than its previous forecast.
BMO remains the most optimistic about further easing, calling for rates to fall to 2.00% by early 2026 and remain at that level throughout the year.
Others lean in the opposite direction. Scotiabank raised its outlook, expecting the policy rate to return to 2.75% by the end of 2026, while the National Bank of Canada raised the policy rate to 2.50%. TD and CIBC are in the middle, with both expected at 2.25%.
“The conflict between weak growth and high inflation is on full display,” Scotiabank economist Jean-François Perrault wrote. “The Bank of Canada and the Federal Reserve should be cutting interest rates in line with the growth outlook, but the strength of inflation suggests otherwise.”
Perot said tensions are likely to persist into next year, with inflation expected to be more stubborn than the central bank expects. “We expect the Bank of Canada’s rate cuts to be reversed in the second half of 2026 as inflation proves more persistent than the Bank of Canada’s current assumptions,” he wrote.
The bond market may be signaling a bottom
Bond markets tend to stay ahead of central banks, and some analysts say they may now be signaling a lower bound for long-term yields. “Any rate cuts along the Government of Canada curve will be modest and long-term yields should remain range-bound for the foreseeable future even with rate cuts,” National Bank wrote in its latest monthly fixed income monitor.
Meanwhile, RBC economists highlighted continued inflation uncertainty and rising term premia as key constraints on how much yields will fall.
The National Bank expects the Canadian government’s five-year bond yield, an important benchmark for fixed mortgage rates, to remain near 2.65% through the end of the year, before gradually rising to around 3.0% by the third quarter of 2027. Shorter maturities are expected to remain near 2% through 2026, reflecting expectations for a dovish and cautious path of policy easing.
Fixed mortgage rates could face fresh upward pressure
The National Bank’s yield forecast provides a clear signal to mortgage borrowers: with limited room for further declines, fixed rates are likely to remain higher for longer than many expect.
Economists at Oxford Economics share a similar view, predicting fixed mortgage rates will remain high in 2026 even as the Bank of Canada continues to cut policy rates.
“While variable mortgage rates will be consistent with policy rates, fixed mortgage rates are expected to remain subject to some upward pressure in late 2025 and 2026 as risk premiums continue to widen,” the firm said in a recent report for members of the Canadian Association of Mortgage Professionals.
Oxford expects the Bank of Canada’s overnight interest rate to bottom out at 2.25% and predicts another 25 basis point cut in October. But even as borrowing costs fall for adjustable rate holders, forecasts still call for the five-year conventional mortgage rate to rise to 5.2% by early 2026.
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Last modified: October 17, 2025
