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The Bank of Canada and Interest Rates
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Why Canadian housing seems unaffordable in 2026: A 35-year real estate disconnect
Housing affordability in Canada has worsened from 1990 to 2026 as household incomes haven’t kept pace with surging home prices.
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About the Bank of Canada
What is the Bank of Canada?
The Bank of Canada (BoC) is the nation’s central bank established to regulate credit and currency of the country, to control and protect the external value of the national monetary unit and to promote the economic and financial welfare of Canada.
Headquartered in the country’s capital, Ottawa, the Bank of Canada was chartered in 1934 under the Bank of Canada Act. The central bank’s purpose is to create and manage Canada’s monetary policy, ensure, and promote a sound financial banking system, and issue Canadian banknotes.
The Bank of Canada also provides banking services and money management for the government, and loans money to Canadian financial institutions.
History of the Bank of Canada
The bank was originally chartered as a privately owned corporation to ensure the bank would be removed from any undue political influence.
On March 11, 1935, the Bank of Canada began operations, following the granting of royal assent to the Bank of Canada Act.
In 1938, under Prime Minister William Lyon Mackenzie King, the bank was legally designated a federal Crown corporation.
The government at the time appointed a board of directors to manage the bank, under the leadership of a governor. Each director swore an oath of 'fidelity and secrecy' before taking office.
In 1944, the Bank of Canada then became the sole issuer of legal tender banknotes in Canada.
Over time, the Bank of Canada has evolved to assist with inflationary and interest rate policies.
How does the Bank of Canada differ from other Canadian banks?
The Bank of Canada is a Crown corporation, established to create and monitor monetary policy, as well as issue bank notes. It is run by a Board of Governors and acts as an economic lever of the Canadian economy to ensure sound financial banking systems and policies are in place.
Other banks in Canada are for-profit institutions which deal with consumer or large business customers for lending, borrowing, and financing issues. Canadian banks provide services to customers that also provide investment and savings opportunities, and some have other divisions that sell insurance and mortgage products. These banks do not set monetary policy and rely on the Bank of Canada for certain lending rates.
Private banks also work as traders and underwriters of government and corporate debt.
The Bank of Canada’s role and responsibilities
The Bank of Canada has many roles in Canadian economic life such as issuing monetary policy and bank notes. It has evolved, however, as a major player in inflation fighting. The Bank of Canada aims to keep inflation at the 2% midpoint of an inflation-control target range of 1% to 3%. The inflation target is expressed as the year-over-year increase in the total consumer price index (CPI).
One of the key ways of combating inflation is by raising the overnight target rate, which is exactly what the Bank started doing in 2022, when inflation rose to the height of 8.1%. Once the rate increases got inflation under control (by early 2024), the Bank began cutting.
With inflation in the 1% to 3% range, at 2.4%, as of Mar. 2026, the overnight rate is likely to remain at 2.25% for the rest of the year.
What is the Bank of Canada overnight rate?
The Bank carries out monetary policy by influencing short-term interest rates. It does this by adjusting the target for the overnight rate on eight fixed dates each year. The overnight rate is the interest rate at which a bank lends or borrows funds from another institution in the overnight market. In Canada, the overnight rate is the interest rate the central bank sets to target monetary policy.
How does the Bank of Canada determine their overnight rates?
If the economy is struggling to grow, it could pull inflation significantly below 2%. In response, the Bank might lower the policy rate so that other interest rates across the economy go down. This means:
- People and businesses pay lower interest on loans and mortgages and earn less interest on savings.
- With lower rates, people tend to spend more, boosting the economy.
But if the economy is growing too fast, it could lead to rising inflation. So, the Bank raises the policy rate, which means:
- People and businesses pay higher interest on loans and mortgages. This discourages them from borrowing, reduces their spending and puts the brakes on inflation.
- With higher rates, people tend to save more and spend less, slowing down the economy.
Overnight rate changes and their effect on the economy
The overnight rate indirectly affects mortgage rates. As the overnight rate increases, it is more expensive for banks to settle their accounts, so to compensate they will raise longer-term rates. It can also affect savings rates in the same manner.
Historical Bank of Canada overnight rates
Throughout the 2010s, Canada enjoyed some of the lowest rates in history. In fact, for multiple consecutive years, the overnight rate didn't exceed 1%.
- Pandemic rate cuts: The low interest rate trend continued into early 2020s, with the COVID-19 pandemic and lockdowns shifting consumer spending away from services to goods. In 2020, the Bank's overnight rate went down even more, from 1.25% to 0.25%, and remained as such throughout 2021, even as high labour demand, supply chain slowdowns and overall price increases were bolstering inflation.
- Post-pandemic rate hikes: With Canadian inflation reaching its peak levels in 2022, the Bank increased the overnight rate 10 times over the course of that year and 2023 to the high of 5%.
- Rate cuts: With inflation reaching the target range of 2% by mid 2024, the Bank began slashing the overnight rate, until it hit 2.25% in October 2025.
- Rate changes on hold: Since then, the Bank announced a pause on rate cuts, amid economic uncertainty and threats of tariffs from the U.S., which is where we find ourselves today in 2026.
Bank of Canada overnight rate changes
Effective date* | Bank of Canada overnight rate | Change (bps) |
|---|---|---|
April 29, 2026 | 2.25% | N/A |
March 18, 2026 | 2.25% | N/A |
January 28, 2026 | 2.25% | N/A |
December 10, 2025 | 2.25% | N/A |
October 29, 2025 | 2.25% | -0.25% |
September 17, 2025 | 2.50% | -0.25% |
July 30, 2025 | 2.75% | N/A |
June 4, 2025 | 2.75% | N/A |
April 16, 2025 | 2.75% | N/A |
March 13, 2025 | 2.75% | -0.25% |
January 29, 2025 | 3.00% | -0.25% |
December 11, 2024 | 3.25% | -0.50% |
October 23, 2024 | 3.75% | -0.50% |
September 4, 2024 | 4.25% | -0.25% |
July 24, 2024 | 4.50% | -0.25% |
June 5, 2024 | 4.75% | -0.25% |
July 12, 2023 | 5.00% | 0.25% |
June 7, 2023 | 4.75% | 0.25% |
January 25, 2023 | 4.50% | 0.25% |
December 7, 2022 | 4.25% | 0.50% |
October 26, 2022 | 3.75% | 0.50% |
September 7, 2022 | 3.25% | 0.75% |
July 13, 2022 | 2.50% | 1.00% |
June 1, 2022 | 1.50% | 0.50% |
April 13, 2022 | 1.00% | 0.50% |
March 2, 2022 | 0.50% | 0.25% |
March 26, 2020 | 0.25% | -0.50% |
March 15, 2020 | 0.75% | -0.50% |
March 3, 2020 | 1.25% | -0.50% |
*As of 2021, a change takes effect the day after its announcement.
Chartered banks’ prime rates in Canada
What is a bank’s prime rate?
The prime interest rate, also known as the 'prime rate,' is the interest rate commercial banks charge their most credit-worthy business customers for things like variable rates and lines of credit. It is a baseline rate upon which all floating rate loans are negotiated (for example, prime 6.70%). The prime rate is set by financial institutions in a competitive fashion.
How do banks determine their prime rates?
The rate is individually set by each bank, but when the prime rate is moved by one bank, other banks tend to follow and use the same rate within a day or two. The prime rate tends to be set based on what the Bank of Canada sets their overnight target rate at.
Why do prime rates matter for mortgage rates?
After the Bank of Canada has set its overnight rate and banks have set their prime rates, mortgage rates will rise and fall. When the prime rate in Canada goes up or down, your mortgage rate will go up or down by the same amount. Variable mortgages usually come with a lower rate than fixed-rate mortgages, however there’s always a risk the rate could go up (or down) during your mortgage term.
Canadian chartered banks' prime rate changes
Effective date | Prime rate of chartered banks | Change (bps) |
|---|---|---|
April 29, 2026 | 4.45% | N/A |
March 18, 2026 | 4.45% | N/A |
January 28, 2026 | 4.45% | N/A |
December 10, 2025 | 4.45% | N/A |
October 30, 2025 | 4.45% | -0.25% |
September 18, 2025 | 4.70% | -0.25% |
July 30, 2025 | 4.95% | N/A |
June 4, 2025 | 4.95% | N/A |
April 16, 2025 | 4.95% | N/A |
March 13, 2025 | 4.95% | -0.25% |
January 30, 2025 | 5.2% | -0.25% |
December 18, 2024 | 5.45% | -0.50% |
October 30, 2024 | 5.95% | -0.50% |
September 11, 2024 | 6.45% | -0.25% |
July 31, 2024 | 6.70% | -0.25% |
June 12, 2024 | 6.95% | -0.25% |
July 19, 2023 | 7.20% | 0.25% |
June 14, 2023 | 6.95% | 0.25% |
February 1, 2023 | 6.70% | 0.25% |
December 14, 2022 | 6.45% | 0.50% |
November 2, 2022 | 5.95% | 0.50% |
September 14, 2022 | 5.45% | 0.75% |
July 20, 2022 | 4.70% | 1.00% |
June 8, 2022 | 3.70% | 0.50% |
April 20, 2022 | 3.20% | 0.50% |
March 9, 2022 | 2.70% | 0.25% |
April 1, 2020 | 2.45% | -0.50% |
March 18, 2020 | 2.95% | -0.50% |
March 11, 2020 | 3.45% | -0.50% |
Source: Bank of Canada
Inflation and the Consumer Price Index (CPI)
Economists and the Bank of Canada evaluate consumer purchasing power using the average price of a 'basket' of commonly purchased goods and services. This basket, which includes items like food, transportation, clothing, recreation, and housing, is known as the Consumer Price Index (CPI).
By observing how the CPI rises or falls, the Bank of Canada can assess inflation levels. A little inflation isn’t a bad thing – it's an indicator of a growing economy. However, it becomes problematic when the cost of goods and services rises faster than consumer purchasing power. This is why the Bank of Canada has a mandate to control inflation. The goal is to keep it within a range of 1% to 3%.
Total Consumer Price Index (historical inflation rates)
Inflation had been on a steady climb starting in 2022 and up until 2024. In June 2022, the total CPI was recorded at a historical high of 8.1% (the highest in over two decades), which led the Bank of Canada to drastically increase its overnight rate throughout 2022 and 2023.
By early 2024, the inflation rate hit the 2% target, which allowed the Bank to lower the rate to 2.25% over the course of 2024 and 2025. As of December 2025, the inflation rate is 2.4% — within the target range — while the rate cuts are on pause.
Despite the threat of additional tariffs and trade disruptions, the Bank forecasts that inflation should remain at around 2% in 2026.
Canada's Total CPI (Inflation) changes
Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
2026 | 2.3% | 1.8% | 2.4% |
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2025 | 1.9% | 2.6% | 2.3% | 1.7% | 1.7% | 1.9% | 1.7% | 1.9% | 2.4% | 2.2% | 2.2% | 2.4% |
2024 | 2.9% | 2.8% | 2.9% | 2.7% | 2.9% | 2.7% | 2.5% | 2.5% | 1.6% | 2% | 1.9% | 1.8% |
2025 | 1.9% | 2.6% | 2.3% | 1.7% | 1.7% | 1.9% | 1.7% | 1.9% | 2.4% | 2.2% | 2.2% | 2.4% |
2024 | 2.9% | 2.8% | 2.9% | 2.7% | 2.9% | 2.7% | 2.5% | 2.5% | 1.6% | 2% | 1.9% | 1.8% |
2023 | 5.9% | 5.2% | 4.3% | 4.4% | 3.4% | 2.8% | 3.3% | 4% | 3.8% | 3.1% | 3.1% | 3.4% |
2022 | 5.1% | 5.7% | 6.7% | 6.8% | 7.7% | 8.1% | 7.6% | 7.0% | 6.9% | 6.9% | 6.8% | 6.3% |
2021 | 1.0% | 1.1% | 2.2% | 3.4% | 3.6% | 3.1% | 3.7% | 4.1% | 4.4% | 4.7% | 4.7% | 4.8% |
2020 | 2.4% | 2.2% | 0.9% | -0.2% | -0.4% | 0.7% | 0.1% | 0.1% | 0.5% | 0.7% | 1.0% | 0.7% |
Source: Bank of Canada
Bank of Canada overnight rate forecast
Despite the tumult caused by the pandemic and the Trump administration, Canada’s economy has remained relatively strong and avoided a recession — so far.
Real gross domestic product (GDP) was stable at the start of 2025, but the economic outlook remains uncertain. In its June announcement, the Bank of Canada acknowledged that while the economy had softened, it had not experienced a sharp downturn. Even so, the Bank emphasized the need for caution amid ongoing unpredictability.
The first quarter concluded with the Bank lowering the benchmark rate by 50 basis points (bps), bringing the overnight rate to 2.75%. However, no further adjustments were made during the June and July announcements, as the Bank cited concerns over U.S. trade policy.
By late summer, cracks in the Canadian economy became more visible. Lower-than-expected inflation, shrinking GDP and rising unemployment led the Bank to cut the key interest rate by 25 bps in September and October to 2.25%.
At its meetings in April 2026, the Bank made no further rate changes, a continuation of the trend started in December the previous year.
Most market experts expect the Bank to continue its cautious approach in 2026. As such, the rate is likely to remain unchanged. That said, given the ongoing trade uncertainty with the U.S., the conflict in the Middle East and rising oil prices, the Bank has signaled that it could still adjust the rate in either direction — though a hold until the end of 2026 remains more likely.
Frequently asked questions about the Bank of Canada
Find answers about questions you may have about the Bank of Canada.
What is the current Bank of Canada interest rate?
As of April 2026, the Bank of Canada overnight rate stands at 2.25%, while the prime rate is 4.45%. The central bank has kept the key interest rate unchanged so far this year, following cumulative cuts of 100 bps in 2025.
What will the Bank of Canada's interest rates be for 2026?
Without a crystal ball, it is difficult for anyone to predict where interest rates will go in 2026. The situation remains fluid, the Bank says. At 2.25%, the overnight interest rate is currently within the neutral range — the rate that neither stimulates or dampens the economy — and the Bank has signaled that it could remain there for the duration of 2026, citing high global uncertainty.
What is the schedule for the Bank of Canada's rate announcements in 2026?
The scheduled dates for the interest rate announcements for 2026 are as follows:
- Wed., Jun. 10
- Wed., Jul. 15
- Wed., Sep. 2
- Wed., Oct. 28
- Wed., Dec. 9
Joel Kranc, Freelance writer
Joel Kranc is a freelance writer and content provider who has worked with Rates.ca since 2019. He holds an MA in political science from the University of Toronto and a film certificate from New York University.
He has been published in and worked for such companies as CNN, Rogers Media, Institutional Investor Magazine, The Globe and Mail, Infrastructure Investor, BenefitsPRO Magazine, Global Finance Magazine, With Intelligence, the CPP Investment Board, Hospitals of Ontario Pension Plan, and many more financial services and industry publications.
He is the author of "Retirement Planning in 8 Easy Steps," which, when released in 2015, was No. 11 on the Publisher's Weekly US Bestseller List for Business and Finance, beating out Mark Cuban's "How to Win at the Sport of Business."
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