Bank of Canada Interest Rate
The Bank of Canada’s interest rate influences borrowing costs across the economy, including mortgage rates, lines of credit, and consumer loans. While the policy rate changes several times each year, its impact on households unfolds gradually and unevenly.
We’ll explain what the Bank of Canada interest rate is, how it works, how it affects mortgage rates, and why changes do not always translate into immediate relief for borrowers.
Key Takeaways
- As of January 28, 2026, the Bank of Canada’s key policy rate is set at 2.25%.
- The policy rate is the central bank’s primary tool for stimulating or slowing the economy.
- Inflation has the greatest impact on the policy rate path.
What Is the Bank of Canada Interest Rate?
The Bank of Canada is the country’s central bank. It was officially established in 1935 and is responsible for regulating and maintaining Canada’s financial system and economy. Under the Bank of Canada Act, the Bank’s primary mandate is to “promote the economic and financial welfare of Canada.”
The Bank is also responsible for Canada’s monetary policy. It primarily manages this responsibility by setting the target for the overnight rate, also known as the policy rate or key interest rate. The BoC can influence the money supply by changing this interest rate to help regulate the Canadian economy. The Bank of Canada is also responsible for issuing Canadian currency, managing foreign currency reserves, and supervising financial systems, funds transfers and retail payment systems through its various departments.
How Often Does the Bank of Canada Change Rates?
The Bank of Canada (BoC) carries out monetary policy by influencing short-term interest rates. It does this by adjusting the target for the overnight policy rate on eight fixed dates each year. Rates can remain unchanged across multiple decisions if economic conditions evolve as expected. The Bank may also adjust rates between meetings in exceptional circumstances.
The Bank of Canada sets a target for the overnight rate, the interest rate on which major financial institutions lend and borrow funds overnight. This policy rate is not a consumer mortgage rate. Instead, it serves as the foundation for short-term lending rates across the financial system.
How the Bank of Canada Interest Rate Affects Mortgage Rates
Changes to the overnight rate influence the prime rate set by lenders, which in turn affects variable-rate mortgages (VRMs) and adjustable-rate mortgages (ARMs), as well as other variable products. Fixed-rate mortgages and fixed products, by contrast, are primarily driven by bond markets rather than the Bank’s policy rate.
Variable and Adjustable Mortgages
Variable and adjustable mortgage rates move in direct relation to the prime rate, which typically changes shortly after the Bank of Canada adjusts its policy rate. When the policy rate rises or falls, lenders typically pass the change through to variable and adjustable mortgage rates.
Fixed-Rate Mortgages
Fixed mortgage rates are not set by the Bank of Canada. They are priced primarily off Government of Canada bond yields, which respond to inflation expectations, fiscal policy, and global bond markets. As a result, fixed rates can rise even when the Bank of Canada is cutting rates, or fall while the policy rate remains unchanged.
Why Rate Changes Do Not Instantly Improve Affordability
Changes in the Bank of Canada’s interest rate do not immediately translate into housing affordability. Home prices, mortgage qualification rules, and existing debt loads all influence whether households feel relief. Even when rates decline, higher qualifying rates, elevated home prices, or tighter lending standards can limit access to credit.
What Happens When the Bank Pauses Rates
When the Bank of Canada leaves its policy rate unchanged, it is often described as a pause. A pause does not signal that rate cuts are imminent. Instead, it reflects a decision to allow previous rate changes to work through the economy while monitoring risks.
A pause differs from a pivot in both intent and implication. A pause signals the central bank’s decision to leave its policy rate unchanged as it assesses the impact of earlier rate changes on inflation, economic growth, and financial conditions. During a pause, policymakers retain full flexibility. They may raise rates or cut them if incoming data materially alters the outlook.
A pivot signals a clear change in policy direction. When a central bank pivots, it shifts from tightening (rate hikes) to easing (rate cuts), or from easing to tightening, following a reassessment of economic risks. A pivot indicates that policymakers believe the previous phase of policy has largely achieved its objective and that the balance of risks has changed.
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The Bank of Canada Key Policy Rate Explained
The Bank of Canada’s key policy rate plays a central role in shaping borrowing conditions across the Canadian economy. While the rate itself changes periodically, its influence extends beyond any single announcement. Understanding how the policy rate works, why it changes, and how it affects mortgage rates helps households and businesses interpret monetary policy decisions more clearly over time.
In March 2020, the Bank of Canada lowered its policy rate to 0.25% as the economy entered a period of severe disruption. That level remained in place until March 2022. Between March 2022 and mid-2023, the Bank raised the policy rate through a series of tightening steps, marking one of the fastest interest-rate cycles in recent decades.
The First Policy Rate Reduction After the Tightening Cycle
The Bank of Canada reduced its policy rate for the first time since 2020 at the June 5, 2024 announcement. The decision reflected evidence that economic growth had moderated and that inflation pressures had begun to ease. Governing Council lowered the policy rate by 25 basis points, signalling a transition from active tightening toward a more cautious, data-dependent stance.
A Brief History of the Bank of Canada Policy Rate
The Bank of Canada was established in 1935 following the economic disruption of the Great Depression. At its inception, the policy rate stood at 2.50%. During the Second World War, the rate declined as economic conditions stabilized and wartime production expanded.
In the post-war period, low interest rates supported investment in housing, infrastructure, and manufacturing. The rate rose again in the mid-1950s as economic growth strengthened.
During the late 1970s and early 1980s, inflation surged, and the policy rate peaked at 21.24% in August 1981. This period illustrated the challenges of managing inflation alongside weak growth and rising unemployment.
Since the early 1990s, the introduction of formal inflation targeting has contributed to a long-term decline in interest rates. The global financial crisis of 2007–2009 prompted the Bank of Canada to lower the policy rate below 1% for the first time.
During the COVID-19 pandemic, the rate returned to 0.25% as policymakers sought to stabilize the economy. The subsequent inflation surge led to the rapid tightening cycle that reshaped borrowing conditions across Canada.
Bank of Canada Interest Rate Changes
| Date of Rate Change | Key Overnight Target Rate (%) | Change (%) | Bank Prime Rate |
|---|---|---|---|
| June 2, 2010 | 0.30% | 0.25% | 2.50% |
| July 21, 2010 | 0.55% | 0.25% | 2.75% |
| September 9, 2010 | 0.80% | 0.25% | 3.00% |
| January 28, 2015 | 0.65% | -0.15% | 2.85% |
| July 16, 2015 | 0.50% | -0.15% | 2.70% |
| July 13, 2017 | 0.75% | 0.25% | 2.95% |
| September 7, 2017 | 1.00% | 0.25% | 3.20% |
| January 18, 2018 | 1.25% | 0.25% | 3.45% |
| July 12, 2018 | 1.50% | 0.25% | 3.70% |
| October 25, 2018 | 1.75% | 0.25% | 3.95% |
| March 5, 2020 | 1.25% | -0.50% | 3.45% |
| March 17, 2020 | 0.75% | -0.50% | 2.95% |
| March 30, 2020 | 0.25% | -0.50% | 2.45% |
| March 3, 2022 | 0.50% | 0.25% | 2.70% |
| April 14, 2022 | 1.00% | 0.50% | 3.20% |
| June 2, 2022 | 1.50% | 0.50% | 3.70% |
| July 14, 2022 | 2.50% | 1.00% | 4.70% |
| September 7, 2022 | 3.25% | 0.75% | 5.45% |
| October 26, 2022 | 3.75% | 0.50% | 5.95% |
| December 7, 2022 | 4.25% | 0.50% | 6.45% |
| January 25, 2023 | 4.50% | 0.25% | 6.70% |
| March 8, 2023 | 4.50% | 0.00% | 6.70% |
| April 12, 2023 | 4.50% | 0.00% | 6.70% |
| June 7, 2023 | 4.75% | 0.25% | 6.95% |
| July 12, 2023 | 5.00% | 0.25% | 7.20% |
| September 6, 2023 | 5.00% | 0.00% | 7.20% |
| October 25, 2023 | 5.00% | 0.00% | 7.20% |
| December 6, 2023 | 5.00% | 0.00% | 7.20% |
| January 24, 2024 | 5.00% | 0.00% | 7.20% |
| March 6, 2024 | 5.00% | 0.00% | 7.20% |
| April 10, 2024 | 5.00% | 0.00% | 7.20% |
| June 5, 2024 | 4.75% | -0.25% | 6.95% |
| July 24, 2024 | 4.50% | -0.25% | 6.70% |
| September 4, 2024 | 4.25% | -0.25% | 6.45% |
| October 23, 2024 | 3.75% | -0.50% | 5.95% |
| December 11, 2024 | 3.25% | -0.50% | 5.45% |
| January 29, 2025 | 3.00% | -0.25% | 5.20% |
| March 12, 2025 | 2.75% | -0.25% | 4.95% |
| April 16, 2025 | 2.75% | 0.00% | 4.95% |
| June 4, 2025 | 2.75% | 0.00% | 4.95% |
| July 30, 2025 | 2.75% | 0.00% | 4.95% |
| September 17, 2025 | 2.50% | -0.25% | 4.70% |
| October 29, 2025 | 2.25% | -0.25% | 4.45% |
| December 10, 2025 | 2.25% | 0.00% | 4.45% |
| January 28, 2026 | 2.25% | 0.00% | 4.45% |
Interpreting Policy Rate Changes Today
The policy rate influences mortgage rates, savings returns, and borrowing costs, but its effects emerge gradually. Lender pricing, bond markets, and household balance sheets all shape how monetary policy decisions translate into real-world outcomes.
Understanding the mechanics of the policy rate helps borrowers interpret rate announcements without reacting to headlines alone. Households considering a purchase, renewal, or refinance benefit from evaluating how current conditions apply to their own financial circumstances.
Frequently Asked Questions (FAQ) About the Bank of Canada Policy Interest Rate
What is the Bank of Canada policy interest rate?
The Bank of Canada policy interest rate, formally known as the target overnight rate, is the benchmark interest rate set by the central bank to guide inflation toward its 2% target. It influences short-term borrowing costs across the financial system and underpins other interest rates in Canada, including lenders’ prime rates.
Is the Bank of Canada interest rate the same as mortgage rates?
The Bank of Canada interest rate is not the same as mortgage rates. The policy rate indirectly influences borrowing conditions. Variable mortgage rates tend to track lenders’ prime rates, which are influenced by changes to the policy rate. Fixed mortgage rates are driven primarily by Government of Canada bond yields, which respond to broader economic and financial conditions rather than directly to policy rate decisions.
How does the overnight rate actually affect the economy?
The overnight rate affects the economy by influencing how financial institutions lend to one another on a short-term basis. These short-term funding costs shape prime rates, savings rates, and other lending rates offered to households and businesses. Over time, changes in borrowing costs influence spending, investment, and inflation trends across the economy.
What does it mean when the Bank of Canada pauses interest rates?
When the Bank of Canada pauses interest rates, it leaves the policy rate unchanged while assessing how prior rate changes are affecting inflation and economic activity. A pause reflects a period of evaluation rather than a shift in policy direction. During a pause, the Bank retains the ability to raise or lower rates if economic conditions change materially.
Why do mortgage rates sometimes change even when the Bank of Canada rate stays the same?
Mortgage rates can change even when the Bank of Canada policy rate remains unchanged because fixed mortgage rates are influenced by bond markets. Bond yields respond to inflation expectations, economic data, and global financial conditions. As a result, fixed mortgage rates may rise or fall independently of policy rate decisions, while variable rates offered by lenders may change if their funding costs change.
Lender funding costs may include market forces, costs of doing business, and acquiring new clients for their products and services.
Final Thoughts
The Bank of Canada’s target for the overnight rate, often referred to as the key policy rate or, more colloquially, the Bank of Canada interest rate, sits at the centre of Canada’s interest rate framework. It functions as the benchmark rate for major financial institutions that borrow and lend funds through the country’s central banking system, shaping short-term borrowing conditions across the economy.
This key policy rate influences several other rates, including savings rates and, most importantly for households, mortgage rates. While mortgage pricing in Canada depends on multiple factors, such as bond markets and lender funding costs, changes in the overnight rate play a central role in determining variable mortgage rates and setting the broader interest rate environment in which fixed rates are priced.
The effects of monetary policy filter through the housing and mortgage markets gradually. Understanding how the policy rate works can help borrowers interpret rate announcements more clearly and avoid reacting to headlines alone.
For borrowers considering a purchase, renewal, or refinance, speaking with a nesto mortgage expert can clarify how current rate conditions apply to your financial circumstances. Getting personalized guidance makes it easier to assess options, compare scenarios, and secure a financing solution that aligns with your mortgage strategy.
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