Money markets increase expectations for a Bank of Canada rate hike in 2026 by 75 basis points

Money Markets Increase Odds of Bank of Canada Rate Hike

On Friday, money markets significantly raised the likelihood of an interest rate increase by the Bank of Canada, now estimating over a 20% probability of a hike next month. This shift comes as the ongoing conflict in Iran continues without resolution and oil prices climb higher.

Previously, the overnight interest rate swap market had reflected only a minimal chance—about 4%—of a rate hike in April. However, new data from LSEG indicates that markets are now anticipating a total increase of 75 basis points in the central bank’s key policy rate by the end of the year. As of Thursday, traders had only expected a single 25 basis point rise in December.

This marks a dramatic reversal from earlier forecasts, which had leaned towards a potential rate cut.