The Bank of Canada has once again held its policy rate steady at 2.25%, signaling a cautious but deliberate approach as economic uncertainty continues to unfold globally.
This rate sits at the lower end of the Bank’s estimated “neutral” range—meaning monetary policy is currently neither stimulating nor slowing the economy. With inflation hovering just below the Bank’s 2% target and core inflation easing to 2.3%, policymakers believe the current rate is appropriate for now.
Global Conflict Driving Economic Uncertainty
A major factor influencing this decision is the ongoing War in Iran, which is now in its third week and already having widespread economic consequences.
The conflict has disrupted global supply chains and triggered a sharp rise in energy prices. The near closure of the Strait of Hormuz—a critical route for global oil shipments—has created bottlenecks affecting not only oil and natural gas but also key commodities like fertilizer.
As a result:
Global inflation is expected to rise in the short term
Financial conditions have tightened
Bond yields are increasing
Equity markets are declining
Credit conditions are becoming less favorable
Despite these pressures, the Canadian dollar has remained relatively stable against the U.S. dollar.
A Softening Labour Market
Both Canada and the U.S. are experiencing a slowdown in employment.
Recent gains seen late in 2025 have been reversed, with Canada’s unemployment rate rising to 6.7% in February 2026. Export data is also showing signs of weakness, although it remains too early to fully assess how the Middle East conflict will impact long-term economic growth.
Trade Challenges and Shifting Global Partnerships
Canada continues to navigate significant trade uncertainty, particularly in relation to the United States. While efforts are underway to diversify trade relationships globally, replacing the scale and efficiency of the U.S. market is no easy task.
Even with increased oil exports to China and growing opportunities in Europe and Asia, there is currently no single market that can fully offset reduced demand for Canadian steel and aluminum from the U.S.
The future of the CUSMA remains a key factor in Canada’s economic outlook. It may take several more months before there is clarity on the direction of this agreement.
What This Means for the Housing Market
Canada’s housing market has been in a gradual downturn over the past few years.
Nominal home prices have declined approximately 20% since their peak in early 2022
When adjusted for inflation, real home prices are down nearly 30%
For buyers—especially first-time homebuyers—this presents a significant opportunity to enter the market at more favorable price points.
Rising Bond Yields and Mortgage Rates
Even though the Bank of Canada has held its overnight rate steady, market-driven interest rates are rising.
The 5-year bond yield is approaching 3%
The 2-year bond yield sits at 2.72%, notably above the overnight rate
As a result, lenders have already begun increasing fixed mortgage rates. If expectations continue to lean toward rising rates, fixed-rate mortgages may become the more attractive option for many borrowers.
The Bottom Line
The Bank of Canada is walking a fine line—balancing inflation control with the need to support economic stability during a period of global uncertainty.
With geopolitical tensions, shifting trade dynamics, and rising borrowing costs, Canadians—especially homebuyers and homeowners—should stay informed and be prepared to adapt their financial strategies.
While challenges remain, opportunities are emerging—particularly in the housing market for those ready to act.
