The latest Canadian inflation numbers for February are in, and they were higher than expected—to say the least. Economists predicted inflation would land at 2.2%, up from January’s 1.9%, largely due to the expiration of a temporary federal tax holiday. But Statistics Canada reports that inflation surged to 2.6%, the highest level in eight months.

So, what does this mean for mortgage rates moving forward?

 

Will the Bank of Canada Hold or Cut Rates?

It’s no secret that the Bank of Canada (BoC) has been expected to continue lowering rates. A moderate inflation increase was anticipated, but the magnitude of this spike exceeded expectations. Compounding the issue is the looming impact of tariffs, yet this inflation jump occurred before any tariff-driven price increases even kicked in.

Historically, rising inflation prompts the BoC to either hold off on rate cuts or, in extreme cases, consider hikes. However, the central bank must also weigh weaker economic growth caused by ongoing trade tensions. This creates a balancing act between inflation control and economic support.

 

What Economists Are Saying

Here’s what leading economists have to say about the latest inflation numbers:

Leslie Preston – Senior Economist, TD Bank
“We expect the Bank of Canada to provide some further cushion in the form of two more 25 basis point rate cuts at its next two rate announcements. Markets have lowered their odds of a cut on April 16th slightly in the wake of today’s inflation numbers, but we will know a lot more about the path of tariffs by the time the decision rolls around.”

Katherine Judge – Senior Economist, CIBC
“The upward pressure on the BoC’s core measures, as well as CPIX, is worrisome, especially since this doesn’t reflect the impact of tariffs yet, even if it includes the impact of the depreciation in the Canadian dollar. We await news on the April 2nd reciprocal tariff date. If a 25% tariff is avoided, the BoC will likely pause at the April meeting to gauge CPI pressures ahead.”

Benjamin Reitzes – Managing Director, Canadian Rates & Macro Strategist
“We’ll see what early April brings on the tariff front, but if the economic outlook doesn’t deteriorate further, the BoC will be considering a pause after cutting at seven straight meetings.”

 

Bank of Canada Rate Outlook

A common thread among analysts is that the BoC will likely hold off on cutting rates for the eighth consecutive time at its April 16th meeting. But the ongoing tariff saga could upend everything. With the unpredictability of U.S. policy shifts, accurate forecasting becomes nearly impossible. The future of BoC rate cuts hinges heavily on how the tariff situation unfolds.

 

Interest Rate Forecasts from Canada’s Big Six Banks

Bank Last Report Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Total Change
CIBC Feb 11 -0.50% N/C N/C N/C N/C N/C N/C -0.50%
RBC Feb -0.25% -0.25% N/C N/A N/A N/A N/A -0.50%
Scotia Mar 18 N/C N/C N/C N/C N/C N/C N/C N/C
TD Mar -0.50% N/C N/C N/C N/C N/C N/C -0.50%
BMO Mar 14 -0.50% -0.25% N/C N/C N/C N/C N/C -0.75%
NBC Mar -0.50% -0.25% N/C N/C N/C +0.25% +0.25% -0.25%

 

Scotiabank remains the least optimistic, predicting no additional cuts through 2026. The other banks project additional rate cuts of 0.50% to 0.75% by the end of 2024. 

National Bank is currently the only one forecasting rate hikes in 2026. But, as always, these forecasts could change dramatically depending on tariff developments.

 

Fixed Mortgage Rate Implications

Following the March 18th inflation report, bond yields spiked upward… and shot up again the following day. The bond market clearly reacted negatively to the data. Since bond yields directly influence fixed mortgage rates, we closely monitor these movements. While no lenders have raised fixed rates yet, continued upward momentum in yields could force them to do so.

As of now, the lowest available 5-year fixed mortgage rate is 3.84%, offered on insured purchases or for properties under $1 million with a down payment of 35% or greater.

 

Final Thoughts

If there was ever a time to say, “expect the unexpected,” this is it. Predicting mortgage rate trends is challenging at the best of times, but in today’s landscape, it’s downright chaotic. The unpredictability of U.S. policy, particularly around tariffs, adds another layer of uncertainty. Even economists within the U.S. administration must feel like they’re forecasting in the dark.

The BoC faces a tough road ahead. While anything can happen, one thing is clear—the future of both variable and fixed mortgage rates will be dictated by the broader economic and political landscape. The longer the trade war uncertainty drags on, the more volatility we’re likely to see.

The forecasts will always be shifting. Even if the Bank of Canada decides to hold its rate steady on April 16th, they could follow up with a double cut at their next meeting on June 4th. With Trump continuing to fan the flames over tariffs, the BoC may have no choice but to respond with additional rate cuts in the coming months.

So, what’s next for rates? Stay tuned.