Bank of Canada Holds at 2.25% as Inflation Falls and Fixed Mortgage Rates Rise — March 2026 Market Update

The Bank of Canada rate decision March 2026 held the overnight rate steady at 2.25%, and for anyone watching the housing market closely, the headline number only tells half the story.

Yes, the overnight rate held steady at 2.25%. But underneath that hold, two forces are pulling in opposite directions — and understanding both of them is the key to making a smart move in today’s market.

Bank of Canada Rate Decision March 2026 — Why Rates Held Steady

The Governing Council kept the policy rate at 2.25%, right at the bottom of the Bank’s estimated neutral range. At this level, monetary policy is considered neither stimulative nor restrictive.

The reasoning is straightforward. Inflation dropped to 1.8% in February, coming in lower than expected. Core inflation measures — the ones the Bank watches most closely — fell to 2.3%. With price growth sitting comfortably near the 2% target, there was no urgency to move in either direction.

Part of the February inflation decline was technical. The GST/HST holiday that Justin Trudeau introduced in January 2025 expired in mid-February 2025, which temporarily raised the price level a year ago. That base effect is now pulling the year-over-year comparison lower. The same dynamic will likely show up in the March CPI data as well, which is a positive signal for the inflation outlook.

Shelter costs — one of the stickiest components of inflation over the past few years — decelerated to just 1.5% year-over-year, the slowest pace in five years. Grocery inflation also eased, dropping from 4.8% to 4.1%, although food prices are still up a cumulative 30% over the past five years.

The labour market continues to show weakness. Employment gains from late 2025 were largely reversed in January and February 2026, and the unemployment rate rose to 6.7%.

The Iran War Is the Wildcard

While the domestic inflation picture is improving, the conflict in Iran — now in its third week — has introduced a massive supply shock. The Strait of Hormuz is effectively shut down, sending oil and natural gas prices sharply higher. Other commodity prices including aluminum and fertilizer have spiked as well.

The Bank acknowledged this directly in its statement, noting that energy supply disruptions and transportation bottlenecks could impact a range of commodity prices beyond just oil.

Financial conditions have tightened. Global bond yields have risen, equity markets have declined, and credit spreads have widened. The Canadian dollar has remained relatively stable against the U.S. dollar, but the broader environment has shifted meaningfully.

If the war ends quickly, the oil shock dissipates and the inflation trajectory stays favourable. If it drags on, energy costs will push headline inflation higher and give the Bank reason to stay on the sidelines longer — or potentially even consider tightening.

President Trump has asked NATO countries to send warships to help reopen the Strait of Hormuz. The sooner that happens, the sooner markets stabilize.

Fixed Mortgage Rates Are Rising — Even Though the Bank Held

This is the part most people miss.

The Bank of Canada controls the overnight rate, which directly influences variable mortgage rates. But fixed mortgage rates are driven by bond yields — specifically the 5-year Government of Canada bond.

That 5-year bond yield is pushing back toward 3%. The 2-year bond is sitting at 2.72%, well above the 2.25% overnight rate. Lenders have already started raising fixed mortgage rates in response.

If you have been waiting for fixed rates to drop further before locking in, that window may be narrowing. Variable rates remain attractive near the bottom of the cycle, but fixed rates are now moving in the opposite direction. For buyers and homeowners approaching renewal, this is a critical distinction.

If people generally start expecting rates to rise from here, fixed rate products will become more popular — which could push pricing even higher.

The Housing Opportunity Is Real

Here is the other side of the equation, and it is significant.

Nominal home prices have fallen 20% from their peak in the second quarter of 2022. When you account for inflation over that same period, real home prices are down approximately 30%.

Shelter costs are rising at the slowest pace in five years. Housing resale activity has been in a long, slow downward trend. For anyone who was priced out during the 2021-2022 frenzy, the current market represents the most favourable buying conditions we have seen in years.

This does not mean prices will fall further. It means the combination of lower prices, reduced competition, and still-low variable rates creates a window that may not stay open indefinitely — especially if fixed rates continue climbing and pull some buyers off the sidelines earlier than expected.

Trade Uncertainty Adds Another Layer

Canada continues to navigate the fallout from U.S. tariff policy. The fate of CUSMA remains uncertain, and we are likely several months away from clarity on the trade agreement.

In the meantime, Canada is working to diversify its trading partners. China has stepped up purchases of Canadian oil to record levels. Exports to Europe and Asia are expected to grow. But no single market can replace the proximity and cost-effectiveness of the U.S. market, particularly for steel and aluminum.

PM Carney continues to push trade deals with non-U.S. countries, which will help offset some of the tariff impact over time.

What This Means for You

Following the Bank of Canada rate decision March 2026, the bottom line depends entirely on your situation.

If you are buying: You are entering the most favourable price environment since before the pandemic. Variable rates are near the bottom of the cycle. The risk is that fixed rates continue rising and competition returns before you act.

If you are selling: Pricing needs to reflect the current market, not 2022 expectations. Homes that are properly positioned and priced are still moving. The key is working with someone who understands the data and can position your listing accordingly.

If you are renewing: Do not default to whatever your lender sends you. The spread between variable and fixed has widened, and the right choice depends on your timeline and risk tolerance.

If you are sitting tight: Stay informed. The next few months will bring more clarity on the war, the trade situation, and the Bank’s direction. Being ready to move when the time is right is its own advantage.

If you want to talk through what this means for your specific situation, I would love to help.

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