Prime rate in Canada
Jamie David, Sr. Director of Marketing and Mortgages
The prime rate in Canada today, November 28, 2023, is currently 7.2%. The prime rate, also known as the prime lending rate, is the annual interest rate Canada’s major banks and financial institutions use to set interest rates for variable loans and lines of credit, including variable-rate mortgages.
Prime rate vs. Bank of Canada target for the overnight rate
Canada Prime Rate Changes: 2010 - 2023
|Effective Date||Prime Rate||Change|
|July 12, 2023||7.20%||0.25%|
|June 8, 2023||6.95%||0.25%|
|January 25, 2023||6.70%||0.25%|
|December 8, 2022||6.45%||0.50%|
|October 27, 2022||5.95%||0.50%|
|September 8, 2022||5.45%||0.75%|
|July 14, 2022||4.70%||1.00%|
|June 2, 2022||3.70%||0.50%|
|April 14, 2022||3.20%||0.50%|
|March 3, 2022||2.70%||0.50%|
|March 30, 2020||2.45%||-0.50%|
|March 17, 2020||2.95%||-0.50%|
|March 5, 2020||3.45%||-0.50%|
|October 25, 2018||3.95%||0.25%|
|July 12, 2018||3.70%||0.25%|
|January 18, 2018||3.45%||0.25%|
|September 7, 2017||3.20%||0.25%|
|July 13, 2017||2.95%||0.25%|
|July 16, 2015||2.70%||-0.15%|
|January 28, 2015||2.85%||-0.15%|
|September 9, 2010||2.75%||0.25%|
|July 21, 2010||2.75%||0.25%|
|June 2, 2010||2.50%||0.25%|
The prime rate is primarily influenced by the policy interest rate set by the Bank of Canada (BoC), also known as the BoC's target for the overnight rate. While these rates are not the same, they are closely related. When the Bank of Canada changes the target for the overnight rate, lenders will generally adjust their prime rates within a few days.
Inflation and the prime rate in Canada: November 2023 update
The pace of inflation growth is a metric that’s closely watched by the Bank of Canada when determining the direction for its Overnight Lending Rate and, by extension, the prime rate in Canada. The central bank increases or decreases its key benchmark rate as a way to control inflation growth and to keep it within its target of 2%.
Inflation in Canada has been running hot since the beginning of 2022, when the end of pandemic lockdowns and related supply-chain snarls led to considerable supply-and-demand imbalances within the economy. As well, global instability, including wars in Ukraine and the Middle East, has caused energy prices to spike, which has also put upward pressure on CPI. Canada’s rate of inflation peaked at a 40-year high in June 2022 at 8.1%. The Bank of Canada’s rate hiking efforts have effectively pulled the measure back down, but it remains well above the Bank’s target of 2%. The latest CPI figure for the month of October 2023 came in at 3.1%, roughly in line with market expectations and down from the 3.8% recorded in September.
Softening gas prices (down by -7.8%) were the principal factor behind the lower inflation reading, although other costs, namely mortgage interest costs, rents and service costs, remain elevated. In welcome news, core inflation (which is inflation stripped of the most volatile costs like gas and food) has cooled to 3.6%, down from 3.7% the month before. Taken together, the most recent CPI data indicates that inflation looks to be trending in the right direction towards the Bank of Canada’s target of 2%. Consequently, we can reasonably expect that the central bank will hold the target for the overnight rate steady at 5% for the rest of 2023.
What is the prime rate?
When you apply for a loan with a variable interest rate, your lender will give you an annual interest rate that’s tied to the bank’s prime rate. All kinds of loans are based on this rate, including certain mortgages, car loans, personal lines of credit, and even some credit cards. Think of the prime rate as the anchor these other interest rates are based on. As the prime rate in Canada moves up or down, so too does the rate of interest you pay on your loan.
How is the prime rate set in Canada?
Each bank sets its own prime rate, but the Big Five Banks usually all have the same prime rate. The prime rate is primarily influenced by the policy interest rate set by the Bank of Canada (BoC), also known as the BoC's target for the overnight rate. When the BoC raises the overnight rate, it becomes more expensive for banks to borrow money, and they raise their respective prime rates to cover the added costs. Conversely when the BoC lowers the overnight rate, banks usually lower their prime rates by the same amount.
Is the prime rate going up in Canada?
As a result of a series of increases in the Bank of Canada's policy interest rate to control historically high inflation rates, the prime rate had also been steadily going up since the beginning of 2022 and into early 2023.
After a conditional pause in rate hikes for most of the first half of 2023, obstinately high inflation and strong Q1 GDP growth incited the Bank to once again resume rate hikes. In its June and July announcements, the Bank raised its key overnight lending rate by 0.25% twice in a row for a total of 10 rate hikes since March 2022, bringing it to 5%. As a result, the Prime rate rose to 7.2%.
Most recently, in the Bank’s last announcement on October 25, it chose to hold the target for the overnight rate at 5%, citing softening GDP, flat retail sales, and, most importantly, September’s lower-than-expected CPI reading of 3.8%. However, it did note that inflation remained above its 2% target, and reaffirmed its commitment to driving inflation down to the 2% mark, even if that meant effecting further rate hikes. Barring any major surprises, the Bank of Canada is unlikely to carry out any more rate hikes in 2023.
If it does, however, and the overnight lending rate goes up, so will the prime rate in Canada.
How does the prime rate affect mortgage rates in Canada?
There are two main types of mortgage rates in Canada – fixed and variable. When you get a fixed mortgage rate, you agree to pay the same rate over the entire course of your mortgage term regardless of what happens in the outside market. Fixed mortgages are a good option if you’re worried mortgage rates will go up, or if you want to enjoy the stability of paying the same mortgage rate until it’s time to renew.
When you get a variable mortgage rate, the rate will be expressed as the prime rate plus or minus a certain percentage. When the prime rate in Canada goes up or down, your mortgage rate will go up or down by the same amount. Variable mortgages usually come with a lower rate vs. fixed-rate mortgages when you sign up, but there’s the risk that the rate could go up (or down) during your mortgage term. Many lenders will allow you to convert a variable-rate mortgage to a fixed-rate mortgage at any time, but you will have to pay the fixed rate as of the time you decide to switch.
Let’s look at an example. If the prime rate is 3.0%, and you get a variable-rate mortgage at prime minus 0.8%, your effective interest rate will be 2.2%.
Example 1: Your original mortgage rate
prime rate - discount to prime rate = your mortgage rate
3.00% - 0.80% = 2.20%
The prime rate can rise and fall over time, and variable-rate loans will rise and fall with it. To continue this example, if the prime rate were to increase by 0.25% to 3.25%, the interest rate on your mortgage would rise by the same amount, to 2.45%.
Example 2: Your new rate after prime rate increases during your mortgage term
new prime rate - discount to prime rate = your new mortgage rate
3.25% - 0.80% = 2.45% (new mortgage rate)
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What is Canada's current prime rate?
The prime rate in Canada today, November 28, 2023, is currently 7.2%.*
* The prime rate in Canada shown above is automatically checked and updated on a daily basis for accuracy.
Is the prime rate in Canada going up in 2023?
Between March 3, 2022 and July 12, 2023, the prime rate in Canada went up by 4.50%, from 2.7% to 7.2%.
The prime lending rates of most lenders went up as a result of the Bank of Canada raising its target for the overnight rate in an effort to control high inflation. When the Bank of Canada increases its key interest rate, most banks and lenders follow suit and raise their own prime rates.
In its last announcement on October 26, the Bank of Canada held the target for the overnight rate steady at 5% for the second consecutive month, citing weak GDP numbers, a slowdown in consumer spending, increased slack in the labour market, and a lower-than-expected CPI reading in September as the primary factors that drove its decision. However, the Bank noted that inflation has yet to come down to its target rate of 2%. In its announcement, the Bank reaffirmed its resolve to drive inflation back down to its target goal of 2%, and made it clear that it would not hesitate to effect further rate hikes if they were deemed necessary. If the Bank does choose to raise its target for the overnight rate again, we can expect the prime rate to rise with it.
How is the prime rate related to the Bank of Canada’s key interest rate?
When the Bank of Canada raises its target for the overnight rate (also known as the policy interest rate or the key interest rate), it becomes more expensive for banks and lenders to borrow money; so, in turn, they raise their respective prime lending rates to cover their additional costs. Similarly, when the Bank of Canada lowers the policy interest rate, it becomes cheaper for banks and lenders to borrow money. As a result, they lower their respective prime rates accordingly.
Why is TD’s mortgage prime rate higher than the mortgage prime rate of the other Big 5 Banks?
In 2016, TD decided to change its mortgage prime rate independent of the Bank of Canada, increasing it by 0.15% – other banks did not follow suit. As a result, TD’s mortgage prime rate continues to be higher than the mortgage prime rate of the other Big 5 Banks.