Bank of Canada Interest Rate
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.
Today’s Mortgage Rates
| HELOC | 1-Year Fixed | 2-Year Fixed | 3-Year Fixed | 4-Year Fixed | 5-Year Fixed | 5-Year Variable | |
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| Term | Lowest Rates | Average Rates (10 Lenders) | 30-Days Change of Average Rates |
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| -Year Fixed | % | % | NaN bps lower |
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The basket of 10 lenders includes: , BMO, TD, Scotiabank, RBC, National Bank, Desjardins, nesto, Tangerine, First National.
Bank of Canada Meeting Schedule
Past Meetings
How the Bank of Canada Determines Its Target Overnight Rate
The Bank of Canada bases its monetary policy decisions on the growth of the Consumer Price Index (CPI), a measure compiled by Statistics Canada. The CPI tracks changes in the cost of a “basket” of goods and services commonly purchased by Canadians, offering a broad snapshot of consumer spending across the country.
Through its policy tools, the Bank of Canada aims to keep inflation, measured by changes in the CPI, within an optimal range. Established in 1991, the inflation-control target is set at 1% to 3%, with a midpoint target of 2% as the preferred rate for annual inflation. This target range is reviewed periodically (typically every 5 years), with the latest review conducted in 2021 and the next review coming up in 2026.
The Bank of Canada assesses its benchmark interest rate eight times a year, considering both domestic and global economic conditions and potential risks. While the Bank operates independently of the government, it remains accountable to Parliament through the Minister of Finance.
How the Overnight Rate Works
The banks don't like to hold cash and like to earn interest on their money whenever possible. Sometimes, Bank A might have a lot of cash on its hands, while Bank B might be short of cash. Bank A is more than happy to lend money to Bank B.
Everyday, the banks come together and make offers to borrow and lend money. The rate that they settle on is called the "overnight rate" because it's the interest rate for borrowing Canadian dollars "overnight". The Bank of Canada has a "target overnight rate" and tries to keep the overnight rate close to the target. If the rate gets too low because there's too much money, the banks can lend their money to the Bank of Canada instead. If the rate gets too high because there's a shortage of money, the Bank of Canada acts as a "lender of last resort" and will lend out money.
Bank of Canada Overnight Rate Changes Since 2010
Bank of Canada Overnight Rate Forecast
Bank of Canada Rate Forecast for 2026: Stability
The forward curve, along with recent communication from the Bank of Canada, both suggest that the policy rate is expected to remain broadly stable through 2026. The Bank has indicated a preference for maintaining rate continuity as it balances multiple competing risks. This expectation, however, sits against a backdrop of abnormally high uncertainty.
The Bank of Canada is attempting to support an economy adjusting to the effects of an ongoing trade war, while also confronting broad-based inflationary pressures that limit its flexibility. These opposing forces widen the range of plausible policy paths. As a result, even though markets and the Bank alike currently point toward stability, confidence around that scenario remains unusually fragile.
Why Not Negative Rates?
The zero lower bound is no longer the strict rule that it once was - the European Central Bank (ECB), the Bank of Japan (BOJ), and central banks of Denmark, Sweden, and Switzerland have all experimented with breaking the zero barrier. The ECB had used negative deposit rates from June 2014 until July 2022, and the BOJ had a negative discount rate from January 2016 until February 2024.
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 expectations about the key policy rate and monetary policy can also affect fixed mortgage rates. Fixed mortgage rates usually follow the yields of Government of Canada bonds with a term to maturity similar to the mortgage term. For example, 5-year fixed mortgage rates follow 5-year Government bond yield. A shift in monetary policy can lead to changes in the bond yields, which will then lead to changes in fixed mortgage rates.
Bank of Canada Overnight Rate History
History of the Bank of Canada
The Beginnings of Canada’s Central Bank (1935–1938)
The Bank of Canada was created in 1935 under the Bank of Canada Act, following recommendations of the Royal Commission on Banking and Currency during the Great Depression. It opened in March 1935 as a privately owned central bank, with shares sold to the public, but this structure was short-lived. In 1938, Parliament amended the Act, bringing the Bank under full public ownership.
The Bank of Canada Target Overnight Rate started in 1935 at 2.50%.
1938–1945: The Great Depression, Recovery & World War II
The Bank Rate stayed around 2.5% until 1943 and fell to roughly 1.5% by 1945. During the war years, Canada’s economy strengthened through expanded industrial production and employment (including a major rise in female labour force participation). The lower interest rate milieu encouraged borrowing by businesses and individuals to expand manufacturing, housing and infrastructure.
1946–1976: Post-War Boom
After the war, the Bank Rate remained comparatively low and stable. The first rate increase came in 1951, when the rate was raised to about 2.0%. This kept interest rates low relative to later decades, facilitating large-scale investment in infrastructure, manufacturing, housing and consumer goods.
1977–1991: Inflation, Oil Shocks & High Rates
The global oil shocks of the 1970s, including the 1973-74 Arab embargo and the 1979 Iranian Revolution, followed by the Iran–Iraq War, caused major supply disruptions and a surge in inflation. In this climate, the Bank Rate rose steadily: by October 1978, it had exceeded 10% (approx. ~10.7%). By August 1981, it reached its all-time high of ~20.8%. As inflation and growth eventually moderated, the rate fell, for instance, to about 6.9% by March 1987.
1991–2008: Inflation-Targeting & Lower Rates Era
In 1991, the Bank of Canada adopted formal inflation-control targets, marking a shift in its monetary policy framework. Rates gradually trended downward through the 1990s and early 2000s, interrupted by occasional upward moves to address inflationary risks and growth concerns.
2009–2017: Global Financial Crisis & Aftermath
In response to the 2008–09 crisis, the Bank Rate fell below 1% by March 2009 (~0.5%), reflecting emergency monetary stimulus. Although the economy recovered, the sharp drop in oil prices in 2014 (falling ~60% from peak) weighed on Canada’s export-driven economy, prompting further easing (e.g., the Bank Rate moved from ~1.25% down to ~0.75% around 2015).
2018-2021: Low Inflation and COVID-19
In 2018-19, despite strong growth, persistently low inflation prevented significant rate hikes (rates remained near ~1.75% or lower). The COVID-19 pandemic triggered dramatic policy responses: the Bank Rate was cut to ~0.25% in March 2020, and the Bank undertook large-scale quantitative easing, massively expanding its balance sheet and supporting the economy through extraordinary monetary stimulus, which coincided with extraordinary fiscal stimulus. The combination of ultra-low rates and heavy stimulus helped avert collapse but contributed to inflation later reaching multi-decade highs by summer 2022.
2022–Present: Battling High Inflation and Steering Toward a Soft Landing
Surge in Inflation and the 2022 Policy Pivot
By early 2022, inflation in Canada had accelerated sharply due to a combination of global supply chain breakdowns, elevated commodity prices, pandemic-era fiscal stimulus, and robust household demand. With inflation far above the 2% target and showing signs of broadening, the Bank of Canada shifted decisively away from its emergency-era stance.
In March 2022, the Bank initiated a rapid tightening cycle. Within months, the overnight target rate rose from 0.25% to multi-percentage levels, reflecting one of the fastest sequences of hikes in modern Canadian monetary history. At the same time, the Bank launched quantitative tightening (QT), allowing government bonds acquired during pandemic-era quantitative easing to roll off its balance sheet.
Aggressive Rate Hikes and a Restrictive Peak (2022–2023)
Throughout 2022 and 2023, the Bank raised rates sharply as inflation remained persistent, driven initially by global supply shocks and later by entrenched domestic price pressures. By mid-2023, the policy rate had reached around 5%, a level considered deeply restrictive relative to estimates of the neutral rate.
These elevated rates helped cool demand in housing, consumer spending, and business investment. Labour market conditions, while still tight, began to ease, and wage growth slowed from its peak momentum.
Holding Steady: Balancing Disinflation with Growth Risks
After reaching its peak, the Bank kept the policy rate unchanged for an extended period. Maintaining the rate at this restrictive level allowed the full impact of earlier tightening to work through the economy. Inflation decelerated steadily as supply chains normalized, energy prices cooled, and domestic demand softened.
During this period, financial conditions became progressively tighter even without new rate increases, as slower inflation pushed real (inflation-adjusted) interest rates higher. The Bank became concerned that leaving the policy rate unchanged for too long risked pushing the economy into an unnecessary recession.
Gradual Easing and Rising Trade Uncertainty (2024–Present)
As inflation moved closer to the Bank’s target range by 2024, policymakers initiated a cautious easing phase. Rate cuts were small and widely spaced, reflecting the Bank's concern that inflation pressures—although declining—were not yet fully extinguished. At the same time, keeping the policy rate unchanged for too long risked tightening financial conditions further in real terms, given falling inflation.
By late 2024 and into 2025, inflation had largely returned toward the 2% target. At this time, the Bank became increasingly focused on heightened global trade uncertainty. Fragmenting supply chains, escalating trade disputes, and the re-emergence of protectionist policies created new downside risks for Canadian exports and business investment. These external pressures complicated the Bank’s policy calibration: easing too aggressively could reignite domestic inflation, while keeping rates unchanged risked compounding the drag from weakening global demand.
As a result, the Bank’s approach has remained deliberately measured—supporting the domestic economy while maintaining flexibility to respond to evolving global trade tension and its effects on growth and prices.
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