By Paul Vieira
OTTAWA--The Bank of Canada has a chance later this week to either rebut or buttress traders' expectations for at least three interest-rate increases in 2026 when its No. 2 official speaks to a business audience in Western Canada.
The central bank left its policy rate unchanged March 18, arguing that it was premature to determine the total economic effect from the war in Iran. Bank of Canada Gov. Tiff Macklem added that the risk of higher energy costs spreading and lifting prices for other goods and services appeared contained, reflecting an elevated level of spare capacity in the economy.
Traders believe differently, and as Monday morning had priced in the likelihood of up to three interest-rate increases by the end of 2026, reflecting fears of a prolonged period of sharply higher energy prices. Yields on two- and five-year government of Canada bonds climbed since last Wednesday.
Higher bond yields translate into higher rates on business and consumer loans, such as mortgages. Canada's housing market is mired in a slump, with both sales and prices dropping, and economists say higher mortgage rates threaten to throttle activity further.
Strategists at TD Securities said a speech in Brandon, Manitoba, from Carolyn Rogers, the central bank's senior deputy governor, takes on heightened importance given the rapid turn in Canada's rates market. A Bank of Canada spokesman said the address will be titled, "Economic Developments, Monetary Policy and Affordability," but declined comment on the speech's content.
Central bank officials have used speeches and events to telegraph where they believe the economy and interest rates are headed.
TD Securities said the Canadian economy's fundamentals--stable inflation prior to the war and a weak labor market--don't support three Bank of Canada rate increases.
Economist David Rosenberg, head of Rosenberg Research in Toronto, added that financial markets "are truly out of step with reality" in pricing in rate increases in Canada.
"Unless you believe that the best way for the Bank of Canada to deal with an exogenous price shock with a near-7% unemployment rate is to detonate the economy (I don't), this tightening trade is nonsensical," Rosenberg said in a Monday morning note to clients. Rosenberg, who previously predicted additional cuts from Canada's central bank, advised clients to buy short-term government bonds.
The Bank of Canada sets its policy rate to achieve and maintain 2% inflation. Prior to the start of military conflict in the Middle East, inflation in Canada was tepid, rising 1.8% in February. Core inflation, which strips out volatile items like food and energy, also eased, and was heading closer to 2%.
Royce Mendes, head of macro strategy at Desjardins Capital Markets, said Canada's rates market is caught up in a selloff in global sovereign-debt markets. He said energy's weight in Canada's consumer-price index is considerably lower than most industrialized countries, which leaves Bank of Canada officials with more scope to look through the recent rise in fuel costs.
Additional rate increases in Canada "could needlessly deepen the economic pain," Mendes said, adding that his firm predicts no rate change from the Bank of Canada this year.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
By Paul Vieira
OTTAWA--The Bank of Canada has a chance later this week to either rebut or buttress traders' expectations for at least three interest-rate increases in 2026 when its No. 2 official speaks to a business audience in Western Canada.
The central bank left its policy rate unchanged March 18, arguing that it was premature to determine the total economic effect from the war in Iran. Bank of Canada Gov. Tiff Macklem added that the risk of higher energy costs spreading and lifting prices for other goods and services appeared contained, reflecting an elevated level of spare capacity in the economy.
Traders believe differently, and as Monday morning had priced in the likelihood of up to three interest-rate increases by the end of 2026, reflecting fears of a prolonged period of sharply higher energy prices. Yields on two- and five-year government of Canada bonds climbed since last Wednesday.
Higher bond yields translate into higher rates on business and consumer loans, such as mortgages. Canada's housing market is mired in a slump, with both sales and prices dropping, and economists say higher mortgage rates threaten to throttle activity further.
Strategists at TD Securities said a speech in Brandon, Manitoba, from Carolyn Rogers, the central bank's senior deputy governor, takes on heightened importance given the rapid turn in Canada's rates market. A Bank of Canada spokesman said the address will be titled, "Economic Developments, Monetary Policy and Affordability," but declined comment on the speech's content.
Central bank officials have used speeches and events to telegraph where they believe the economy and interest rates are headed.
TD Securities said the Canadian economy's fundamentals--stable inflation prior to the war and a weak labor market--don't support three Bank of Canada rate increases.
Economist David Rosenberg, head of Rosenberg Research in Toronto, added that financial markets "are truly out of step with reality" in pricing in rate increases in Canada.
"Unless you believe that the best way for the Bank of Canada to deal with an exogenous price shock with a near-7% unemployment rate is to detonate the economy (I don't), this tightening trade is nonsensical," Rosenberg said in a Monday morning note to clients. Rosenberg, who previously predicted additional cuts from Canada's central bank, advised clients to buy short-term government bonds.
The Bank of Canada sets its policy rate to achieve and maintain 2% inflation. Prior to the start of military conflict in the Middle East, inflation in Canada was tepid, rising 1.8% in February. Core inflation, which strips out volatile items like food and energy, also eased, and was heading closer to 2%.
Royce Mendes, head of macro strategy at Desjardins Capital Markets, said Canada's rates market is caught up in a selloff in global sovereign-debt markets. He said energy's weight in Canada's consumer-price index is considerably lower than most industrialized countries, which leaves Bank of Canada officials with more scope to look through the recent rise in fuel costs.
"Policy rate markets tend to get out over their skis during times of market stress," added Joe Brusuelas, chief economist with RSM, the accounting and consulting firm. He said there is a risk of an interest rate increase in Canada, but that would require sharply higher crude-oil prices, unanchored inflation expectations among households and businesses, and a run-up in prices for services.
"This is a high threshold to meet, and one policymakers at the Bank of Canada will simply not know for a number of months," Brusuelas said.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
March 23, 2026 15:20 ET (19:20 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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