What Is The Policy Interest Rate In Canada?

The Bank of Canada (BoC) policy interest rate is an essential tool that influences not only the economy, but also your personal finances! It is set by the BoC and determines the cost of borrowing and returns on savings. By understanding how it works, you’ll be better prepared to adapt your financial decisions to changes in the economy: mortgages, savings and other loans.

On September 17, 2025, the Bank of Canada (BoC) announced a 25-basis-point reduction in its policy interest rate, bringing it down from 2.75% to 2.50%, the lowest level in 3 years. This unanimous decision by the Governing Council comes amidst a significantly weakened labor market: significant job losses, rising unemployment, and negative economic growth in the second quarter.

The BoC also notes that underlying inflation, although still above the 2% target, is tending to ease. The Canadian government’s withdrawal of most retaliatory tariffs against the United States is cited as a factor helping to control inflationary pressures.

For borrowers, this reduction in the policy interest rate should ease payments on variable-rate loans, lines of credit, and mortgages. However, the decision remains dependent on upcoming economic data, particularly regarding employment and inflation.

The Bank of Canada’s next decision is on October 29, 2025.

On July 30, 2025, the Bank of Canada once again maintained its policy interest rate at 2.75%. This was the third consecutive status quo decision. The reasons cited include the relative resilience of the Canadian economy, persistent inflationary pressures, and external risks (tariffs, international trade, etc.).

On June 4, 2025, the Bank of Canada maintained the policy interest rate at 2.75%. It indicated that the Canadian economy was showing signs of slowing, without a sharp decline, while underlying inflation remained stronger than anticipated. This decision reflects a desire for caution in order to assess the impact of global economic uncertainties and international trade policies.

On April 16, 2025, the Bank of Canada maintained the policy interest rate at 2.75%. The decision is explained by economic data showing a moderate weakening of growth, but inflation remaining just above expectations. Uncertainties related to U.S. tariffs remain a factor in its cautious stance.

On March 12, 2025, the Bank of Canada (BoC) lowered the policy interest rate by 25 basis points, bringing it from 3.00% to 2.75%. This reduction is part of a cycle of consecutive cuts, marked by uncertainties related to U.S. tariffs and trade tensions threatening growth.

Inflation is now close to the 2% target, but the Bank remains vigilant, as underlying inflationary pressures and remaining housing costs raise concerns.

For borrowers, this means relief on variable rates and a possible decrease in payments related to variable-rate loans and mortgages.

On January 29, 2025, the Bank of Canada (BoC) decided to cut its interest rate by a further 25 basis points to 3%. This was the sixth consecutive cut. In addition, the BoC has announced the end of quantitative tightening, so that its balance sheet can stabilize and then begin to grow in line with the economy. Since June 2024, the BoC’s interest rate has fallen from 5% to 3%.

As a result, Canadians with variable-rate mortgages will see a reduction in their interest payments as early as tomorrow (January 30). In addition, interest rates on personal loans are also expected to fall by a quarter of a percentage point.

This announcement comes in a context where inflation in Canada is under control; the Consumer Price Index (CPI) is up by 1.8% on an annual basis in December 2024 (compared to an increase of 1.9% in November 2024). In addition, the BoC forecasts GDP growth of 1.8% in 2025 and 2026, with inflation remaining within its 2% annual target.

That said, the Bank of Canada’s press release indicates that there is a great deal of uncertainty surrounding the Canadian economy in relation to U.S. tariffs. President Donald Trump is threatening to impose 25% tariffs on Canadian imports, effective February 1^st, 2025.

On December 11, 2024, the Bank of Canada (BoC) decided to cut its policy interest rate by a further 50 basis points to 3.25%. Since June 2024, the rate has fallen from 5% to 3.25%.

This announcement comes at a time when inflation is hovering around 2%, and recent economic growth has been weaker than expected. In fact, growth stood at 1% in the third quarter of 2024 and is expected to be even more modest in the final quarter. Additionally, the unemployment rate rose to 6.8% in November. Finally, Donald Trump’s threat to impose tariffs on Canadian imports is a major source of uncertainty for the economic outlook.

Furthermore, the Bank of Canada announced in its recent press conference that 50-basis-point rate cuts are over and that future cuts will be more gradual.

The Bank of Canada(BoC) is Canada’s central bank. It was created in 1934 to maintain the country’s economic and financial stability.

Its primary mandate is to preserve the value of your money by controlling inflation. It accomplishes this through four key roles: managing monetary policy, ensuring a secure financial system, designing and distributing banknotes, and acting as the government’s financial agent.

Although it doesn’t directly serve citizens, it influences the economy and your finances by setting the policy interest rate.

The policy interest rate, also known as the target for the overnight rate, is the rate at which major financial institutions borrow or lend funds for one day. The Bank of Canada adjusts this rate to keep inflation at its 2% target, within a range of 1% to 3%.

When the Bank of Canada raises the policy interest rate, borrowing becomes more expensive, slowing the economy. Conversely, a decrease makes credit less expensive, stimulating spending and investment. This mechanism is at the heart of the BoC’s monetary policy.

The Bank of Canada meets eight times a year to review and adjust the policy interest rate. Rate changes, if necessary, are generally in the order of 25 basis points. However, changes of 50 basis points are also possible, as was the case in 2024. In some years, there may be no change at all. In short, these decisions are based on inflation and economic growth.

The policy interest rate is an essential tool for controlling inflation and stabilizing the economy. A rise in the rate slows consumption and investment, as borrowing becomes more expensive. A lower rate stimulates these activities, as the cost of borrowing is reduced.

This rate also affects savings rates, the real estate market and the value of the Canadian dollar. By adjusting the policy interest rate, the Bank of Canada directly influences your personal finances and the economy in general.

Variable mortgage rates move in line with the policy interest rate. If the rate rises, so do your monthly payments. Fixed mortgage rates, on the other hand, are influenced by long-term bonds. A higher policy interest rate makes buying a home more expensive.

To compare mortgages, use our mortgage rate comparator.

The policy interest rate influences your financial decisions, especially when it comes to borrowing and investing. Following the Bank of Canada’s announcements helps you anticipate economic changes and adjust your financial strategies. This knowledge can help you better plan your savings, loan repayments or home purchases.

In short, the policy interest rate is the Bank of Canada’s lever for stabilizing the economy and controlling inflation. It adjusts the rate according to inflation and economic growth. As we’ve seen, rate variations have a direct impact on your finances. For example, mortgage rates. Now that you understand how it works, you can make informed decisions, whether you’re investing, saving or planning a major purchase like a home.