March 23, 2026 | Inflation Fighters?

Happy Monday Morning!

As expected, the Bank of Canada held rates this past week. However, what caught our attention was the Banks dovish commentary, and the ensuing market reaction. Per the BoC press conference:

“The risk that higher energy prices quickly spread to the prices of other goods and services looks contained.”

“Governing council will look through the war’s immediate impact of inflation but if energy prices stay high, we will not let their effects broaden and become persistent.”

By all accounts it was a dovish presser, and markets interpreted it as such. Markets internalized the speech, and largely expected the BoC to remain on hold until the end of the year, with one rate hike priced in for Q4.

Less than 48 hours later, with energy prices surging, and bond yields ripping, traders in overnight interest rate swaps pivoted aggressively, betting that borrowing costs will increase by 75 basis points in 2026, starting with a 25bps point hike in July. Boom.

In other words, we’ve gone from no rate hikes before the war, to one rate hike expected on March 18th, to three rate hikes on March 20th. An unprecedented move.

If traders are right, the Bank of Canada will opt to fight inflation spurred by an energy crisis from a war in the middle east, despite domestic demand collapsing. Colour me skeptical. Rate hikes will not unlock the straight of Hormuz nor will they pump a single extra barrel of oil out of the ground.

Nonetheless, it doesn’t matter what we think, the bond market is on the move. The Canada 5 year bond yield is up a whopping 30bps this week, and 60bps over the past month. Tough timing for the record number of Canadian mortgages renewing this year.

If you’re coming up for renewal or about to make a purchase, you’ll want to secure a rate hold. Ideally you would have done it a few weeks ago.

When we frame it all up, here’s what we know for sure. Home sales in Canada are tracking below last year, and mortgage rates are now going up, not down. We are going through a historical housing correction, and that looks poised to continue.

Home prices are falling, and that’s a good thing for affordability per Carolyn Rogers at the BoC.

“The housing market is looking weaker, and weaker than than we had incorporated into our January outlook. So that’s something we’ll be looking at certainly when we prepare the April outlook. As you would know, I’m sure some of the the more recent data coming out in early March looks like we might see a bit of a rebound, but it’s probably too early to tell. So, definitely, we need to take another look at the housing market. What I would say about prices is, I think I said this at the last press conference, we need house prices to come down so that housing is more affordable. We’ve all been worried about how fast house prices went up in recent years, and now we’re worried about how they’re coming down. We do need them to settle down a bit for housing to get more affordable. There isn’t really a path to affordability, particularly in some of our big centers, without house prices correcting a bit.”

Mrs. Rogers has certainly had a helping hand in correcting home prices.

However, the unwind in Canadian housing is not only due to higher interest rates, but a sharp reversal in immigration.

Canada’s population declined by more than 100,000 people in 2025, marking the first annual decline in records that date back to the 1940s. Led by a sharp drop in non-permanent residents (temporary workers and foreign students). Population growth has gone from 1.2 million per year, to -100,000.

So we have falling home prices, a declining population, and higher energy prices all weighing on demand. Will the BoC put the final nail in the coffin and hike rates three times this year? Traders seem to think so.

Let’s watch.

Steve Saretsky March 23rd, 2026

Posted In: Steve Saretsky Blog

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