Bank of Canada Policy Rate Explained: How Rate Decisions Reach Your Mortgage

The Bank of Canada’s policy rate, officially its target for the overnight rate, was 2.25% as of October 1, 2026 (Bank of Canada series V39079). It is the starting point for the rates Canadian lenders charge, and of the rates in this guide to mortgage rates in Canada, it is the one set by a public decision on a published date. This page explains what the rate is, when it is set, how a decision travels to fixed and variable mortgages, and how the Bank’s estimate of the “neutral” rate fits in.

What the policy rate is

Every business day, banks and other financial institutions settle payments with each other, and those that come up short can borrow overnight from those with extra. The Bank of Canada sets a target for the interest rate on those one-day loans. That target is the policy rate, also called the overnight rate or the key interest rate.

Institutions can also deal with the Bank itself: they can deposit money with it overnight at the deposit rate or borrow from it overnight at the Bank Rate. The range between the two is the operating band. The Bank currently runs a “floor system”: the band is 30 basis points wide, with the deposit rate 5 basis points below the target. Until January 2025, the deposit rate was set equal to the target; before 2020, the band was generally one-half of a percentage point wide with the target in the middle. At today’s policy rate, the three rates are:

Bank Rate and policy rate: Bank of Canada, as of October 1, 2026. Deposit rate: the policy rate minus 5 basis points, per the Bank’s explainer.

People don’t borrow in the overnight market, but the Bank of Canada lists the rates its policy rate affects, including the prime rate of commercial banks (used for loans such as mortgages and lines of credit) and the rates paid on deposits, GICs and other savings.

Why the Bank raises or lowers it

The Bank of Canada aims to keep inflation at the 2% midpoint of a target range of 1% to 3%, measured by the year-over-year increase in the total consumer price index (latest Canadian inflation figures). In the Bank’s own description, if a struggling economy could pull inflation well below target, it may lower the policy rate so loan and mortgage rates fall and spending picks up; if the economy is growing fast enough to push inflation up, it may raise the rate so borrowing costs more and spending slows.

Inflation is one of several forces behind the rates lenders charge; the guide to how mortgage rates are determined covers the others.

When decisions are announced

The Bank of Canada sets its policy rate on eight fixed dates a year, a schedule it introduced in 2000; since 2021 a change takes effect the day after it's announced, and in special circumstances the Bank can announce a change between scheduled dates. The last unscheduled changes, on March 13, 2020, and March 27, 2020, responded to the COVID-19 pandemic. Some announcements come with a Monetary Policy Report, the Bank’s full economic outlook, as marked in the table. This year’s dates, from the Bank of Canada’s schedule:

The Bank’s last change to the rate was announced on October 29, 2025. The banking section’s announcement schedule page covers what each announcement means for savings and GICs.

How a decision reaches your mortgage

A decision reaches each kind of mortgage by a different route:

Variable rates and prime. The Financial Consumer Agency of Canada explains that a lender may offer a rate of prime plus a percentage, as is often the case with a variable-rate mortgage, and that a variable-rate HELOC is based on the lender’s prime rate, which may change when the Bank of Canada changes its policy rate. The Bank of Canada’s prime rate series (V80691311) was 4.45% on September 30, 2026, 2.20 percentage points above the policy rate. How prime is set is on the prime rate page; how lenders price a variable rate from it is on the variable rate page.

Fixed-payment variable mortgages. When rates rise far enough, a fixed payment can stop covering the interest. That threshold is the trigger rate, and its page shows how to work yours out.

Fixed rates. A fixed rate is benchmarked to Government of Canada bond yields, not to the policy rate. Yields move between decisions on what investors expect over the whole term: at its September 2, 2026 announcement, when it held the policy rate, the Bank noted that long-term bond yields had moved up globally, including in Canada. The bond-yield page has the data.

Example: a quarter-point move on a variable mortgage

Take a $500,000 variable-rate mortgage with 25 years of amortization left at 4.00%, an assumed rate chosen for the example. A Bank of Canada move of 0.25 percentage points, passed through in full to prime, changes the rate to 3.75% after a cut or 4.25% after a hike.

The neutral rate

The neutral rate is, in the Bank’s definition, the rate at which the policy rate would settle in the long run once output is sustainably at its potential and inflation is at target, after the effects of all cyclical shocks have faded. It can’t be observed directly, so the Bank estimates a range.

The Canadian range is unchanged since the April 2025 report. Today’s policy rate is level with the bottom of that range and 1.00 percentage points below its top.

For a borrower, the range is a rough guide to where the policy rate, and with it prime, could settle in the long run. It is not a forecast for any date, since the Bank sets the rate for the economy it sees at each decision. Published outlooks for the months ahead are collected on the interest rate forecast page.

Where the rate has been

The Bank’s series (V39079) in the site’s data starts on 2009-04-21. Over that period:

From the pandemic low to the peak, the rate rose 4.75 percentage points; since the peak it has come down 2.75 points. Every change since 2009-04-21 is listed on the Bank of Canada rate history page, and the rates borrowers paid over the decades are on the mortgage rate history page.

Related pages

• How bond yields affect mortgage rates: the route from markets to fixed rates
• How the US Federal Reserve affects Canadian mortgages: why US decisions reach Canadian rates
• Prime rate explained
• Interest rate forecast for Canada
• Fixed vs variable mortgages: choosing between the two products