Canada Prime Rates

Bank of Canada Holds Policy Rate and Signals Holding Over the Coming Months Amid Trade Tensions and Inflation Challenges

As the Bank of Canada (BoC) holds its policy rate at 2.25%, the prime lending rate remains at 4.45%. The BoC is trying to support a softening domestic economy while remaining cautious about persistent inflation pressures. The Bank has indicated that rates are now at about the right level, suggesting it will likely hold its policy rate steady over the coming months, barring a material change in the outlook. Core inflation continues to exceed the Bank of Canada’s 2% target. CPI-trim is around 3.0% and CPI-median is around 2.9%, indicating that underlying price pressures remain sticky. At the same time, declines in oil prices and the elimination of consumer carbon pricing are helping to moderate headline inflation, which currently sits near 2.2%. Shelter and food remain key contributors to inflation, though shelter inflation has eased somewhat. Meanwhile, both the Canadian and global economies have proved more resilient than many feared in the face of U.S. protectionism. The labour market remains relatively firm, with unemployment declining to 6.5% and employment growing over the past three months. Economic activity has been volatile, as Q3 2025 GDP expanded by about 0.6% quarter-over-quarter (roughly 2.6% annualized) following a contraction of about 0.4% in Q2 2025. The rebound has been driven largely by a swing in net trade, with exports recovering somewhat and imports falling significantly.

Bank of Canada Holds Policy Rate Amid Trade Tensions and Inflation Challenges

• Forced import substitution through trade redirection is softening the blow of U.S. trade disruption for Canada, as domestic producers increasingly replace some foreign suppliers without large new investments.
• U.S. tariffs (at least in the short term) exert a modest disinflationary effect on Canadian prices by dampening demand and compressing trade volumes, while Canada’s retaliatory tariffs, including a 25% levy on non-USMCA-compliant vehicles, add to price pressures in certain categories, especially goods-intensive and some food-related supply chains.
• Trade frictions have weakened business confidence and slowed investment, adding to economic headwinds and weighing on Canada’s medium-term growth prospects.
• The overall reduction in trade activity is likely to suppress demand across the economy, reinforcing disinflationary forces even as specific tariffs raise some prices, and complicating the Bank’s policy calculus.

The Bank of Canada is carefully assessing the timing and magnitude of both inflationary and disinflationary forces stemming from U.S. trade policies and Canada’s response. While these effects may partly offset each other, the earlier decision to cut rates to 2.25% reflects growing concern over domestic economic weakness and the need to balance inflation control with employment and financial stability. Importantly, while the nominal policy rate is 2.25%, the real interest rate—adjusted for underlying inflation—is close to zero and may even be slightly negative depending on the inflation measure used. That is generally considered expansionary. A neutral real rate is often estimated in the range of 0.5% to 0.75%, suggesting that monetary policy is now tilted toward supporting growth rather than restraining inflation.

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.