Bank of Canada Interest Rate

Today's Bank of Canada Rate:

4.50%

Updated July 27th, 2024

Latest Update: July 24, 2024

The Bank of Canada reduces Its Policy Rate by 0.25% to 4.5%.

The Bank of Canada (BoC) reduced its policy rate while continuing its policy of quantitative tightening. June saw inflation decline to 2.7% from 2.9% in May.

The Bank of Canada reduced its Policy Rate.

• Canada’s unemployment rate has risen from a trough of 5% at the beginning of 2023 to 6.4% in June 2024 and is likely to climb further.
• Canada's GDP increased merely 0.41% in the first quarter of 2024 and merely 0.02% in the last quarter of 2023, after declining in the third quarter of 2023.
• Financial reports from big banks suggest that the number of delinquencies is on the rise, and a recession might be around the corner.

The Bank of Canada rapidly increased its policy rate from 0.25% in March 2022 to 5% in July 2023, bringing higher prime rates and variable and adjustable mortgage rates. That was in response to a high inflation rate, reaching a 30-year high of 8.1% in June 2022, which brought about one of the most aggressive interest rate hikes in Canada’s history. Inflation has cooled since June 2022 and reached 2.7% in June 2024. In June 2024, the BoC started its long-awaited rate-cut cycle.

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Bank of Canada Background

The Bank of Canada is a crown corporation and Canada's central bank. It was chartered in 1934 under the Bank of Canada Act and is responsible for formulating Canada's monetary policy and regulating Canada's financial systems. Its principal role is "to promote the economic and financial welfare of Canada". Led by a governing council, its main tool for conducting monetary policy is the target for the overnight rate, or the key policy rate. By changing this rate, it can influence the supply of money circulating within Canada's economy. It is also solely responsible for the issuance and distribution of Canadian currency and regulation of foreign currency reserves.

The basket of 10 lenders includes: CIBC, BMO, TD, Scotiabank, RBC, National Bank, Desjardins, nesto, Tangerine, First National

*Prior to March 2024, HSBC Canada was included in the basket

How the Bank of Canada Determines Its Target Overnight Rate

The Bank of Canada makes its decisions based on the growth of the Consumer Price Index (CPI), reported by Statistics Canada. CPI is calculated from the price of a “basket” of goods and services typically consumed by Canadians. It represents a broad picture of consumer spending across Canada.

Using its monetary policy tools, the Bank of Canada aims to maintain inflation, as calculated by changes in the CPI, within a certain range. Introduced in 1991, the inflation-control target sets a range of 1% – 3% as the ideal range for annual inflation, with the midpoint of 2% being the common target rate. This range is reviewed regularly with the latest review being in 2021.

The Bank of Canada reviews its benchmark interest rate eight times a year and considers both local and international, current and potential influences in their review. Although the Bank of Canada operates independently of the government, it is ultimately responsible to Parliament through the Minister of Finance.

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Bank of Canada Overnight Rate Changes Since 2010

Bank of Canada Overnight Rate Forecast

The Bank of Canada and Mortgage Rates

Through the key policy rate and its other monetary policy tools, the Bank of Canada influences the interest rate for all borrowing and lending transactions in Canada. For example, changes in the key policy rate usually lead to changes in bank Prime rates. Subsequently, the key policy rate has significant influence on variable mortgage rates that are based on a lender's Prime rate.

Changes in the key policy rate and monetary policy can also affect fixed mortgage rates. Fixed mortgage rates usually follow the yields of Government of Canada 5-Year bonds. A shift in monetary policy can lead to changes in the bond yields, which will then lead to changes in fixed mortgage rates.

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Bank of Canada Overnight Rate History

The Bank of Canada was created as part of the Bank of Canada Act in 1935. It was recommended by the Royal Commission in response to the economic conditions of the Great Depression. In March 1935, the Bank of Canada was opened to the public as a private institution with shares sold to public investors. It was quickly nationalized as a public institution by an amendment to the Bank of Canada Act in 1938.

1935 - 1945: The Great Depression and World War II

The Bank of Canada rate (not officially the target overnight rate until much later in the century) started at 2.5% in 1935 and ended at 1.5% in 1945. The economy strengthened during the war as Canada played a vital role in supplying natural and manufactured resources to the Allies. There was also increased employment, especially of women. The decrease in the Bank of Canada rate encouraged people and businesses to borrow money to invest in new manufacturing plants and housing.

1946 - 1976: The Post-War Period

After World War II, the Bank of Canada rate did not rise until October 1955, when it was changed to 2.0%. This low-interest rate environment promoted investment in new infrastructure, manufacturing, housing and consumer goods.

1977 - 1991: Stagflation

After the upward change in 1955, the Bank of Canada rate continued to rise slowly throughout the 1960s and early 1970s. In October 1978, the benchmark rate hit double digits for the first time at 10.25%. This was due in part to the global oil crisis and the OPEC oil embargo. With record-high prices for oil in August 1980 that continued into 1981, the Bank of Canada rate hit an all-time high of 20.03% in August 1981. The lowest rate reached during this period was 7.14% (March 1987).

1991 - 2008: Economic Recovery

After the recession of the 1980s, the Bank of Canada rate between 1991 – 2009 generally went downwards with only a few exceptions. The inflation-target rate was introduced at the beginning of this period.

2009 - 2017: The Great Financial Crisis

In March 2009, the BOC rate dipped below 1% for the first time to 0.5% in response to the Great Financial Crisis. Despite a minor recovery, in 2014, oil prices dropped a staggering 60%, causing a recession in Canada's oil-driven export economy. The Bank of Canada rate then dropped from 1.25% to 0.75% in 2015.

2018-Present: Low Inflation and COVID-19

Despite widespread economic growth, 2018 and 2019 were marked by continued low inflation, preventing the Bank of Canada from raising rates any higher than 1.75%. This was quickly reversed with the impact of COVID-19 with three 50 basis point drops in March 2020. The drop in policy rate was followed by a quantitative easing (QE) which vastly expanded the BoC’s balance sheet and thus the money supply in the Canadian economy.

The Bank of Canada rate lay near its lower limit at 0.25% for two years to contract the effect of the Covid pandemic on the economy. This policy coincided with substantial increases in government transfers and worked too well. The expansionary monetary and fiscal policy caused inflation to reach a multi-decade peak in summer 2022. Inflation forced the BoC to change course early in 2022. During 2022 and 2023, the BoC fought inflation through a combination of quantitative tightening and a series of rate hikes. By the end of October 2023, the BoC rate is at 5%.