Canada Interest Rates Face New Pressure From Energy Shock
The Bank of Canada held its key interest rate at 2. 25 per cent in January, a level it has maintained since October 2025, and now approaches a scheduled policy announcement on Wednesday, March 18. The surge in oil prices has pushed investors to raise the odds of higher borrowing costs, putting canada interest rates back on the table and narrowing space for cuts this year.
Canada Interest Rates March Outlook
Ratehub. ca mortgage expert Penelope Graham predicts the central bank will most likely continue to hold the policy rate in its March update, and she warns of “little to no rate relief on the horizon for the remainder of this year. ” Graham also highlights that a five-year variable mortgage can be as low as 3. 35 per cent, while the lowest five-year fixed term sits at 3. 69 per cent. The pattern suggests that if the Bank leaves policy unchanged in March, variable borrowers will retain a pricing edge but fixed-rate costs may resume upward drift as market yields firm.
Bank of Canada policy trade-offs
The war involving Iran has flipped investor expectations and lifted the perceived probability of future hikes, with markets pricing investors as 100 per cent confident of a hike at the central bank’s final meeting of 2026 and assigning better-than-even odds for moves at the September and October gatherings. Prior to the conflict, many market participants expected the central bank to remain on the sidelines at a current level that some accounts cited as 2. 5 per cent. At the same time, North American and European crude benchmarks pushed past US$100 and were up roughly 50 per cent and 45 per cent, respectively, from March 1, after disruptions tied to the Strait of Hormuz reduced seaborne supply. The figures point to market repricing that forces the Bank of Canada to weigh renewed inflation risk against growth concerns as it sets policy.
Penelope Graham on mortgage options
Graham says lenders have already begun increasing fixed mortgage rates as federal five-year bond yields climbed, with the federal government five-year yield broaching the three per cent mark this week. She warns that rising bond yields — influenced by higher global Treasury yields — have narrowed the window for attractive fixed pricing, and that mortgage availability and pricing will respond quickly if yields keep climbing. The figures point to upward pressure on fixed borrowing costs and a likely dampening of spring housing demand, even as motivated buyers may still find relative bargains amid softer prices and ample supply.
The next confirmed development is the Bank of Canada’s policy announcement on Wednesday, March 18. If oil prices remain above US$100 and investor bets on hikes stay elevated, the data suggests the bank will face stronger incentives to keep policy on hold or to entertain tightening later in 2026 rather than move toward near-term rate cuts.
