Bank of Canada December Rate Hike Is Priced as a Coin Flip
One-month CORRA futures on the Montreal Exchange carried 12.0 basis points of tightening into the December 9 Bank of Canada decision at Tuesday’s settlement, 48% of a quarter-point move. On our reading the decision has two realistic outcomes, no change or 25 basis points, which makes twelve basis points consistent with a roughly even chance of a December rate hike and no more. The figure is our arithmetic on the exchange’s own settlements.
The Bank raised the overnight rate target 25 basis points to 2.5% on October 28, its first increase since July 2023, and pointed at energy first. Governor Tiff Macklem restated that case on Tuesday and left the door open to another. One reason it is not further along, we think, sits in the Bank’s own announcement of the hike: it tightened ahead of a pass-through its core inflation measures had not picked up.
What the December contract actually prices
A COA contract settles to the average of daily CORRA over its calendar month, so 100 minus the price is the expected average overnight funding rate. These are the November 3 settlements, from the Montreal Exchange quote board for one-month CORRA futures.
| Contract month | Settlement price | Implied average CORRA | Open interest |
|---|---|---|---|
| November 2026 | 97.4850 | 2.5150% | 1,009 |
| December 2026 | 97.3950 | 2.6050% | 242 |
| January 2027 | 97.3450 | 2.6550% | 200 |
| February 2027 | 97.2150 | 2.7850% | 50 |
Montreal Exchange one-month CORRA futures, November 3, 2026 settlements. Implied average CORRA is 100 minus the price.
An implied CORRA is not an implied policy rate until the funding basis comes out of it, because CORRA does not fix exactly on the Bank’s target. Through October that basis averaged 1.97 basis points, a calendar-day average measured against the target then in force, with the last reading carried across weekends and the October 12 holiday to match how the contract settles. Differencing day by day matters because the target itself moved mid-month, from 2.25% to 2.50% on October 29.
The decision is announced Wednesday December 9 at 09:45 ET and the new target takes effect the next day, splitting the 31-day month into 9 days at the current rate and 22 at whatever the meeting produces. Our arithmetic:
- 2.6050% x 31 = 80.755
- less 9 days at 2.5000% plus 1.97 basis points of basis, or 9 x 2.5197% = 22.677
- leaves (80.755 – 22.677) / 22 = 2.6399% average CORRA across the last 22 days
- less the 1.97 basis point basis = 2.6202% implied target after December 9
That is 12.0 basis points above today’s 2.5%, 48% of a quarter point.
The December contract is thin: 242 lots of open interest, with no bid and no ask on the board, against 1,009 in November. And the basis, the one input we choose, barely moves the answer. The November contract sits entirely against the current target, no announcement falling in November, and implies 1.5 basis points; on that, December prices 12.7 basis points, 51% of a hike. The three sessions since the hike, the only read taken wholly from the current rate regime, average 2.67 basis points, which prices 11.0, or 44%. Call it 44% to 51% on any basis we can defend.
The Governor restated the energy case on Tuesday
Macklem’s opening statement before the House of Commons Standing Committee on Finance named two developments behind the move. “First, the outlook for inflation has deteriorated. With the war in the Middle East persisting, global oil prices have increased and are expected to remain higher for longer.” Second, “the growth outlook for Canada has improved modestly.”
The path that follows runs long: CPI about 3.5% by year-end and “at or above 3% through much of 2027 before returning close to the 2% target by the middle of 2028.”
The same statement carries the other side. Unemployment has been around 6.5% for several months, “a broad set of indicators continues to point to some excess supply in the economy”, and “growth will likely slow in the fourth quarter as new US tariffs weigh on activity”.
Then the sentence that governs December. “Looking ahead, Governing Council agreed we would take future decisions one meeting at a time. There could be a need to raise the policy rate further, but given the uncertainties, we will proceed carefully.” A December hike is neither flagged nor ruled out.
The Bank moved ahead of its own price data
Its own press release on October 28, the day of the increase: “Excluding gasoline, inflation was 2.2% in September and measures of core inflation remain close to 2%.”
The same paragraph answers it. Cost pressures are “building” as fuel raises production and transportation costs, businesses “have mostly absorbed higher input costs so far”, “Bank surveys suggest cost pass-through will increase over the next year”, and near-term household and business inflation expectations “have risen” while longer-term ones stay “well anchored”. That is survey and expectations evidence rather than price data, and we read twelve basis points as a part-way discount of it.
The September deliberations, published September 16, are blunter. Governing Council found “little evidence that higher gasoline prices were passing through broadly to the prices of other goods and services”, and said it had been “looking through the initial direct impact of gasoline prices on inflation”. What moved was a judgement about risk, not a measurement: the longer prices stayed high, members agreed, “the more likely they would be passed through”, and a spillover into other CPI components “could require a monetary policy response”. Eight weeks later the Bank delivered one.
So the case for December rests on a forecast that cannot be checked today. Twelve basis points is the price of that. The readings that would test it, October CPI on November 16 and producer prices three days later, both land before the meeting.
Oil is below the eve of the hike and well above early October
Every WTI figure below is the December contract at the settlement window, so no comparison crosses a roll.
| Session | WTI settlement-window price |
|---|---|
| Thursday October 8 | $90.71 |
| Thursday October 22 | $99.48 |
| Friday October 23 | $103.23 |
| Monday October 26 | $101.75 |
| Tuesday October 27 | $99.87 |
| Wednesday October 28 (decision day) | $102.76 |
| Thursday October 29 | $102.01 |
| Friday October 30 | $104.07 |
| Monday November 2 | $96.54 |
| Tuesday November 3 | $96.12 |
NYMEX WTI, December contract, settlement-window price from Yahoo Finance trade data, our calculation.
Tuesday’s $96.12 is 6.46% below the $102.76 that settled on decision day and 3.75% below the $99.87 of October 27, the last settlement before the Bank raised rates. It is 5.96% above the October 8 settlement of $90.71. What has come off is the second half of October, and $7.53 of the $7.95 fall from the October 30 high came on Monday, the session covered in our November 2 report on the WTI curve and the Hormuz talks.
Crude is only the first link in the chain the Bank describes. Macklem put CPI near 3% down to high oil prices and “elevated refinery margins”, with gasoline and diesel prices feeding consumer and business costs from there. Our table measures that first link over ten sessions, well short of a forecast that runs a year.
The hike raised one borrowing cost while the market lowered another
Government of Canada benchmark yields from Bank of Canada Valet, through the last published session on Monday, November 2.
| Session | 2-year | 5-year | 10-year |
|---|---|---|---|
| Tuesday October 27 (last session before the decision) | 3.36% | 3.57% | 3.83% |
| Wednesday October 28 (decision day) | 3.41% | 3.62% | 3.87% |
| Friday October 30 | 3.28% | 3.51% | 3.78% |
| Monday November 2 | 3.26% | 3.46% | 3.74% |
Our arithmetic on those readings: the 5-year, which five-year fixed mortgage pricing tracks, is 16 basis points lower than on decision day and 11 lower than the session before it. The 2-year is 15 lower than on decision day, and at 3.26% sits 76 basis points above the 2.5% overnight rate.
So the Bank raised the rate variable borrowers pay, with BMO taking prime from 4.45% to 4.70% effective October 29, while the yield behind fixed mortgage pricing fell. The arithmetic on a $500,000 balance is in our report on the October 28 decision.
The 5-year fell 7 basis points on October 30, from 3.58% to 3.51%, on a day WTI settled $2.06 higher. The bond rally started before the oil break.
A second hike priced in or out bears most directly on names valued off the discount rate and their borrowing costs, so a 5-year yield 16 basis points lower reads as relief for Canadian REITs and regulated utilities.
Two inflation readings land before the decision
Dates from the Bank of Canada’s upcoming events page and Statistics Canada’s key indicator release schedule.
| Date | What |
|---|---|
| Thursday November 5 | Appearance, Governor Macklem and Senior Deputy Governor Rogers, Standing Committee |
| Friday November 6 | Labour Force Survey, October |
| Monday November 9 | Bank of Canada Market Participants Survey, 10:30 ET |
| Tuesday November 10 | Bank of Canada Summary of Deliberations, 13:30 ET |
| Monday November 16 | Consumer Price Index, October |
| Thursday November 19 | Producer prices, October |
| Tuesday November 24 | Speech, Governor Macklem, Economic Club of Canada, Toronto |
| Monday November 30 | GDP, September and the third quarter |
| Friday December 4 | Labour Force Survey, November |
| Wednesday December 9 | Bank of Canada decision, 09:45 ET |
Producer prices for October, on November 19, sit closer to the production stage the Bank describes than the CPI print three days earlier. On November 10 the Bank publishes the Summary of Deliberations for its last meeting, the record of how Governing Council argued this exact decision, a month before it argues the next one. On November 9 the Bank’s own Market Participants Survey gives the market’s expected policy path. Macklem and Rogers are back before a Standing Committee tomorrow.
Net of the same basis, February implies a 2.765% average overnight rate, 26.5 basis points above today. Twelve basis points in December, 26.5 by February and a 2-year yield 76 basis points above the overnight rate, Monday’s yield against Tuesday’s settlement, reads as a market that largely expects another quarter point, is unsure of the month, and prices the curve for a path running well past February. The gap between them is term premium plus the longer path on our reading, not a contradiction, and we cannot split the two. With 50 lots of open interest in February, that end of the curve is worth holding loosely.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Every quotation attributed to Governor Tiff Macklem comes from the Bank of Canada’s Opening Statement before the House of Commons Standing Committee on Finance of November 3, 2026. The Governing Council quotations come from the Bank’s Summary of Governing Council Deliberations for the fixed announcement date of September 2, 2026, published September 16, 2026. The core inflation, cost pressure, Bank survey and inflation expectation quotations come from the Bank’s own press release of October 28, 2026, announcing the increase. All are reproduced verbatim from those documents. The COA settlement prices and open interest are the Montreal Exchange’s own quote board for one-month CORRA futures, read on November 4, 2026 before the session traded, so they are the November 3 settlements. Daily CORRA, the target for the overnight rate and the benchmark Government of Canada bond yields are Bank of Canada Valet series AVG.INTWO, V39079 and BD.CDN.{2,5,10}YR.DQ.YLD; the yields run only to Monday November 2 because Valet publishes one business day in arrears, so the 2-year yield is set beside a November 3 futures settlement and the article says so. WTI prices are the NYMEX December contract (CLZ26) settlement-window price, the volume-weighted price of trades from 2:28 to 2:30 p.m. ET rebuilt from one-minute trade data from Yahoo Finance and recorded daily; every WTI comparison is the same contract so none crosses a roll. The 1.97 basis point October CORRA basis is a calendar-day average differenced against the target in force on each day, which is the convention the contract settles on; the 2.6202% implied target after December 9 and its 12.0 basis points, the 44% to 51% range across the three defensible basis readings, the February implied level, the WTI percentage changes and the yield differences are all our own arithmetic on those published figures and are labelled as ours where they appear. The BMO prime rate and the borrower arithmetic are carried from our own October 28 decision coverage, which sourced them to BMO’s own announcement. Release dates come from the Bank of Canada’s upcoming events page and Statistics Canada’s key indicator release schedule.
