Canada Prime Rates

Bank of Canada Holds Policy Rate at 2.25% as Global Conflict Drives Energy Prices Higher and Economic Uncertainty Deepens

With the Bank of Canada maintaining its policy rate at 2.25%, the prime lending rate remains unchanged at 4.45%. While inflation has hovered near the Bank’s 2% target for more than a year, the sharp rise in global energy prices following the war in the Middle East is expected to push inflation higher in the short term. At the same time, the Canadian economy is showing signs of weakening due to soft labour markets, ongoing trade uncertainty with the United States, and slowing export activity. For both savers and borrowers, this means interest rates tied to prime will stay stable for now, though risks have increased on both sides of the outlook.

Bank of Canada Maintains Policy Rate and Prime Rate Amid Rising Global Energy Prices and Domestic Economic Weakness

• Canada’s GDP contracted by 0.6% in the fourth quarter of 2025, weaker than expected, largely due to a larger-than-anticipated drawdown in inventories even as domestic demand grew more than 2%.
• The labour market has softened, with employment gains from late 2025 reversed in early 2026 and the unemployment rate rising to 6.7% in February.
• CPI inflation eased to 1.8% in February, with all major core inflation measures close to 2%, but the recent spike in global oil and natural gas prices will push inflation higher in the coming months.
• The war in the Middle East has sharply increased global energy prices and tightened global financial conditions, leading to higher bond yields, lower equity prices, and wider credit spreads.
• Transportation disruptions through the Strait of Hormuz pose risks to the supply of key commodities, including fertilizer, adding uncertainty to future inflation pressures.
• Trade tensions with the United States, including tariffs and ongoing uncertainty around North American trade agreements, continue to weigh on Canada’s export outlook and business investment.
• For borrowers, a steady prime rate at 4.45% means no immediate change to variable-rate mortgages, HELOCs, and lines of credit, though rising global financing costs may influence lender behaviour even without a policy rate move.
• For savers, deposit and GIC rates are expected to remain largely stable, but a short-term rise in inflation from energy costs may reduce real returns until global price pressures stabilize.

Overall, the Bank of Canada is navigating a complex mix of weakening domestic growth and rising global energy prices. While inflation is currently near target, the conflict in the Middle East has increased the risk of temporary price spikes, and trade uncertainty continues to weigh on exports and business investment. Keeping the policy rate unchanged provides stability as the Bank assesses how these forces evolve. For borrowers, this means interest rates tied to prime—such as variable-rate mortgages and lines of credit—are likely to remain stable in the near term. For savers, returns should remain steady but may face pressure from higher short-term inflation. The outlook will depend heavily on the duration of the conflict abroad and how quickly global energy markets stabilize.

The Prime rate in Canada is currently 4.45%. The Prime rate is the interest rate that banks and lenders use to determine the interest rates for many types of loans and lines of credit. These can include credit cards, HELOCs, variable-rate mortgages, car and auto loans, and much more. If you have any of these loans, changes in the prime rate will also change your debt payments and thus your GDS and TDS ratios.