Overnight Lending Rate in Canada

The Overnight Lending Rate in Canada is currently at 2.25%. This rate, also referred to as the Bank of Canada’s policy interest rate, key interest rate, or target rate, is the benchmark cost of borrowing set by the central bank. This rate influences the Prime rate set by lenders for variable loans and lines of credit, including variable-rate mortgages and HELOCs.

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What is the Bank of Canada Overnight Rate?

The Bank of Canada’s Overnight Lending Rate is the main tool the central bank uses to set monetary policy; changing this rate can regulate the cost of borrowing and investment demand, which in turn influences the pace of inflation growth and helps keep the Canadian dollar stable.

The Bank of Canada states the direction for the Overnight Lending Rate in eight pre-scheduled announcements each year, indicating whether it will raise the rate, lower it, or hold it stable. The main purpose of setting this rate direction is to control inflation, which the central bank has a mandate to keep at a 2% target. When inflation falls below this level, the Bank of Canada will respond by cutting the Overnight Lending Rate, and will hike it when inflation surpasses this target.

What does overnight lending rate mean?

The rate is referred to as “overnight” because it actually sets the cost for Canada’s banks to borrow money from each other at the end of each business day. These institutions are constantly exchanging money over the course of the day in order to have the funds available to service their consumers. For example, any time a shopper uses their debit card or makes an e-transfer payment, money flows from one financial institution to another. The ability to move funds with ease – also known as liquidity – is a crucial part of Canada’s financial system, and underpins a healthy economy.

However, these institutions must settle their payments at the end of each day, as some will have lent out more than they brought in, and vice versa. They can do this by again borrowing money from each other in the overnight market, the cost of which is set by the central bank’s overnight lending rate (currently 2.25%).

If they choose, consumer banks can also borrow or deposit funds directly with the Bank of Canada in order to settle their balance sheets. The Bank offers both a deposit rate, which allows lenders to deposit funds overnight and earn interest, and a Bank rate, which is the cost for lenders to take out a one-day loan from the Bank. Today’s Bank Rate is 2.5% and the Deposit Rate is 2.20%, indicating an operating band of 0.30%.

While these interest rates do not directly affect consumers, they’re important behind-the-scene metrics that trickle down through the cost of all credit products. 

2026 Bank of Canada interest rate announcement schedule

The Bank of Canada makes eight scheduled interest rate announcements each year. These dates are important for anyone with a variable-rate mortgage, HELOC, or other loan tied to lenders’ prime rates, since changes to the overnight rate can influence borrowing costs shortly after each announcement. As of July 2026, the Bank of Canada has held its overnight rate at 2.25%. The remaining scheduled dates below will determine whether rates stay steady or begin to shift.

How does the Bank of Canada rate affect my mortgage rate?

The Bank of Canada's overnight lending rate directly affects variable-rate mortgages. While it doesn't directly determine fixed mortgage rates, its policy decisions can influence financial markets and Government of Canada bond yields, which lenders use to price fixed mortgages. Here's what the latest Bank of Canada announcement means for borrowers:

• The Bank of Canada held its overnight rate at 2.25%. This marks the sixth consecutive rate hold, meaning there was no immediate change to the policy rate.
• Variable-rate mortgages remain unchanged. Since Canada's major lenders typically adjust their prime rates only when the Bank changes its overnight rate, the prime rate remains at 4.45%, keeping most variable mortgage rates stable.
• Fixed mortgage rates may still change and are currently under upward pressure. Unlike variable rates, fixed mortgage rates are primarily based on Government of Canada bond yields, which move with inflation expectations, economic data and financial markets, not just Bank of Canada decisions.

Ratehub's take: The July rate hold keeps variable mortgage rates stable, with the lowest five-year variable rate currently at 3.40%. However, borrowers shouldn’t assume another Bank of Canada cut would automatically make every mortgage cheaper. Fixed rates remain under upward pressure from elevated bond yields due to the continued conflict between the U.S. and Iran, with the lowest insured five-year fixed rate now at 4.04%. That’s why it's important to watch both Bank of Canada announcements and bond market movements when shopping for a mortgage. 

How the Bank of Canada affects variable-rate mortgages

When the Bank raises or lowers its policy rate, Canada's major lenders typically adjust their prime rates by the same amount. Since variable mortgages are usually priced as prime plus or prime minus a percentage, your mortgage rate will generally change shortly after a Bank of Canada announcement. For example:

• Prime rate: 4.45%
• Mortgage rate: Prime - 1.05%
• Effective mortgage rate: 3.40%

If the Bank of Canada raised its overnight rate by 0.25% and your lender increased its prime rate to 4.70%, your mortgage rate would increase to 3.65%, assuming your discount remained the same. Now, depending on how your variable-rate mortgage is structured, the impact of this increase may differ:

• Variable-payment mortgage: Your lender adjusts your monthly payment whenever your mortgage rate changes. If the Bank of Canada raises its overnight rate, your payment increases. If the Bank cuts rates, your payment usually decreases.
• Fixed-payment variable mortgage: Your monthly payment stays the same even if interest rates change. Instead, the amount of each payment going toward interest and principal changes. When rates rise, more of your payment goes toward interest and less toward paying down your mortgage balance. When rates fall, more of your payment is applied to your principal, helping you build equity faster.

How the Bank of Canada influences fixed mortgage rates

Lenders primarily use Government of Canada bond yields to price fixed mortgages. Bond yields respond to factors including:

• Inflation expectations
• Economic data
• Financial market sentiment
• Expectations for future Bank of Canada decisions

While Bank of Canada announcements can influence bond markets, fixed mortgage rates don't automatically rise or fall after every rate decision. For example, if investors expect inflation to remain elevated, Government of Canada bond yields may rise even if the Bank holds its overnight rate steady. That can put upward pressure on fixed mortgage rates despite no change to the policy rate.

A historical look at the Overnight Lending Rate

The Bank of Canada has been playing an important role in regulating the Canadian economy since it was founded in 1935. Initially, the BoC set only the Bank rate – the cost of borrowing for one-day loans from the bank to consumer lenders. The Overnight Lending Rate was then introduced in 1996, when the BoC switched from a floating Bank Rate to one that was set at the top of its operating band. It began its policy for announcing its key rates in eight pre-scheduled announcements in 2000. 

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Bank prime rates

• Tangerine Prime Rate 
• TD Bank Prime Rate 
• Scotiabank Prime Rate 
• HSBC Prime Rate 
• Bank of Montreal Prime Rate 
• CIBC Prime Rate 
• RBC Royal Bank Prime Rate 

Also read: 

• Prime Rate Canada
• Fixed vs. variable mortgage rates
• Bank of Canada hikes target interest rate to 5% in July announcement
• What's in store for Canadian home prices in 2023?
• How to tell if mortgage rates will go up or down

References:

1. Bank of Canada: Understanding our policy interest rate
2. Bank of Canada: Policy interest rate
3. Bank of Canada: A history of the key interest rate