Canada Prime Rates

The Prime Rate declined to 5.45% as the Bank of Canada reduced the policy rate by 50 basis points to 3.25%.

Annual inflation was 2% in October 2024, down from a multi-decade high of 8.1% in June 2022. Weakness and oversupply in the economy are pushing inflation down. Inflation undershot the Bank of Canada's (BoC) 2% target in September, but core inflation is still higher than the target. In fact, the BoC’s favourite measure of core inflation is 2.6%. Therefore, the BoC is bringing its policy rate toward the neutral rate to land the Canadian economy softly. The past five interest rate cuts were more about avoiding a passive tightening. If inflation declines without rate cuts, real rates would rise significantly.

The Bank of Canada lowered its policy rate again, aiming to nail the soft landing of the Canadian economy:

• The inflation rate is volatile as annualized 9-month inflation between January 2024 and October 2024 was 3%. While annualized inflation over the past three months was -0.7%.
• The unemployment rate has risen from 5% at the beginning of 2023 to 6.8%. Also, most of the jobs created were in the public sector
• Excess demand is no more, and once again, the Canadian economy is in excess supply of goods and services.

The prime rate rose from 2.45% in March 2022 to 7.2%, its highest level over the past 22 years, in July 2023. After almost one year at 7.2%, it went down to 5.45% over the past six months. As inflation has cooled down, the BoC is adjusting its policy rate.

The Prime rate in Canada is currently 5.45%. 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.