Intelligent Investment
Higher-for-Longer
Canada Monthly Market Commentary - October 2026
October 30, 2026 2 Minute Read
The Bank of Canada has now joined the global rate hike cycle and increased the policy interest rate 25 bps to 2.50% at its October 28 meeting. This ends a period where the central bank has held the policy rate flat over the past year and marks the first hike since July 2023. According to the Bank of Canada, the decision to hike over another hold came down to expectations for higher-for-longer energy prices and that businesses will likely pass more of their costs to consumers over the next year. This means a higher and more persistent inflation outlook which could warrant further increases in the policy rate, but the central bank has said it will be assessing that decision one meeting at a time. In the meantime, financial market trading implies nearly about 65% odds that the Bank of Canada raises interest rates again in December with a hike fully priced in by January 2027.
Alongside the interest rate decision, the Bank of Canada has also modestly upgraded its economic growth outlook. The projection for GDP growth in 2026 was raised to 1.0% from 0.7% in its July outlook, reflecting a stronger economy through the middle of the year. However, the new U.S. tariffs are expected to slow growth in Q4 2026 before their impact slowly fade over 2027 and 2028. The annual growth forecasts for 2027 and 2028 were lifted to 2.0%, up from 1.8%, driven by continued consumer spending, business investment and fiscal measures by the government. But as continues to be the case, this outlook remains subject to considerable uncertainty around trade relations with the U.S. Talks have resumed and there was speculation the U.S. administration might try to secure a deal ahead of the U.S. midterm elections on November 3, however, it appears “limited progress” has been made so far.
Meanwhile, long term bond yields have come off their recent peaks but still remain materially higher compared to levels from the start of the year. With the Canada and U.S. 10-year yields likely to stay higher-for-longer, real estate cap rates are coming under pressure as spreads shrink. This has been particularly acute in the U.S., where CBRE has found the average commercial real estate cap rate spread to the 10-year Treasury yield has compressed to a record low of about 160 bps. This has led to U.S. cap rates already starting to rise as deals are retraded and some planned sales converted instead to refinancings. Canada, on the other hand, had more breathing room given the more muted rise in Canada bond yields, resulting in a national average all-properties cap rate spread of 256 bps in Q3 2026. Pressure was seen in Canadian multifamily yields, which was the only asset class where cap rates rose, albeit marginally. Otherwise, wider spreads across the other asset classes, strong demand and improving leasing fundamentals generally led to Canadian cap rates holding steady in Q3 2026 and little to no retrading.
Economic Highlights:
- Employment fell by 68,300 jobs in September 2026 and the unemployment rate rose to 6.5%.
- Headline inflation rose to 3.1% in September 2026 while core measures CPI-median and CPI-trim eased slightly to 1.9% and 1.8%, respectively.
- Retail sales grew 1.2% in August 2026 with advanced estimates indicating a 0.7% gain for September 2026.
Viewpoints:
- BoC hikes rate to 2.5%, suggests more may be needed to contain oil-price shock
- Canada reports limited progress in trade talks with US
- Higher-for-Longer Rates: Implications for Commercial Real Estate
- CBRE Canadian Cap Rates & Investment Insights Q3 2026
Latest Market Insights
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Brief | Intelligent Investment
Higher-for-Longer
The Bank of Canada has now joined the global rate hike cycle and increased the policy interest rate 25 bps to 2.50% at its October 28 meeting.
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Brief | Intelligent Investment
The Cost Of Action
The rise in global bond yields that has been building over the last couple months accelerated in recent weeks, with the 10-year U.S. Treasury yield spiking to nearly two-decade highs and pulling Canada yields alongside them
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Brief | Intelligent Investment
Brace For Impact
Canada braces for another extended period of economic uncertainty after trade talks with the U.S. broke down and a new phase of the trade war began.
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