Leslie Kennedy
Updated Dec 10, 2025
As of December 2025, the Bank of Canada interest rate remains 2.25%.
With just three weeks before year-end, the Bank of Canada did not offer additional relief to borrowers aftter two consecutive rate drops that ended in October 2025. This pause in the BoC's rate drops was not unexpected with many experts predicting the Bank would hold rates steady after robust economic data. The Bank's target rate impacts bank lending rates, which are used to determine interest rates on mortgages, personal and auto loans as well as student loans and other debt products.
The December rate announcement marks the eighth interest rate announcement of 2025. The next interest rate announcement will be January 28, 2026.
As the nation’s central bank, the Bank of Canada (BoC) is responsible for making sure our dollar maintains its value — and this is done by keeping inflation low and maintaining stable, economic growth.
The BoC's decisions affect how we spend money, how and when we save, where we invest and how businesses grow and prosper.
When it lowers its target rate, this prompts lenders, such as the Big 6 Banks or fintech firms, to drop their prime rate — the base rate used to calculate how much it will cost to borrow money. Dropping the target rate — also known as the overnight rate — usually means it's easier to borrow money and the loan will cost you less. This encourages more spending.
On the flipside, raising the overnight rate often reduces spending from both businesses and consumers. When less money is spent, businesses earn less profit and, in theory, this cools price increases or prompts price reductions. A rise in the overnight rate makes it harder for borrowers to access funds, effectively costing more when they do get a loan.
This is all part of the Bank of Canada's monetary policy. Eventually, the rise and fall of interest rates should help consumers, businesses and the economy reach a state of equilibrium — where consumers and businesses are spending at a rate that keeps the economy moving forward while maintaining a lower cost of living.
Read More: Who wins and loses when the Bank of Canada lowers its overnight rate?
3 actions the Bank of Canada can take during a rate announcement
There are three potential actions the Bank of Canada can take during a rate announcement, which can have a significant impact on the Canadian economy.
The three actions the BoC can take include:
Bank of Canada: Rate hike
The BoC could increase interest rates to combat inflation. A hike would raise borrowing costs, potentially slowing down consumer spending and investment but helping to control inflation.
Bank of Canada: Rate hold
The BoC might decide to keep the current rate steady. This decision would indicate that the current monetary policy is adequate, at this point in time, to manage inflation and economic growth without further intervention. It can also indicate that the BoC is maintaining a wait-and-see approach to determine if past monetary policy initiatives have had the desired affect.
Bank of Canada: Rate cut
The BoC could cut its overnight target rate and this could prompt an interest rate cut in prime and mortgage rates. An interest rate cut will usually stimulate economic activity by making borrowing cheaper, encouraging spending and investment.
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Get started todayOvernight rate versus the prime rate
The Bank of Canada establishes its target for the overnight rate — the interest that it charges for lending money to banks and other financial firms. This institutional loans help create liquidity — meaning it helps supply money where there is demand. The overnight rate is the same as the target rate and only the Bank of Canada establishes this rate.
How the overnight rate affects the prime rate
Once the BoC establishes the overnight rate, other lenders, such as banks, loan providers, auto financing companies and credit card companies, use the overnight rate to establish their prime rate — the interest rate charged on loans issued to borrowers.
For instance, if the BoC target rate is 2.25%, then the prime rate at a Big 6 Bank would be closer to 4.25%. This doesn't mean that all borrowers will get a loan that charges 4.25% interest. Many lenders will quote interest rates based on prime. For instance, a personal loan provider could offer a customer “prime plus 1%” ( or prime plus one). This means the borrower will pay an interest rate that is 1% higher than the prime rate set by that lender. It also means if the prime rate increases — due to a Bank of Canada rate increase — the borrower will be charged more in interest payments. The reverse is true when the BoC drops rates; the borrower's interest payments will decrease.
How is the target overnight rate determined?
The overnight rate is determined by the rate of inflation and how the economy is performing.
If the economy isn’t growing — if consumers aren’t spending and businesses are faltering — the bank will lower the overnight rate, all else being equal. This reduction in the cost of borrowing should incentivize Canadians to spend more money, borrow at lower rates and boost the overall economy.
If inflation is rising because the economy is growing faster than it should be, this raises red flags. In an effort to bring down costs, the BoC will raise the interest rate. This makes it more expensive to borrow money, such as mortgages or personal loans. This leads to less spending, and inflation will start to pull back.
The target overnight rate is the principal tool used by the Bank of Canada to control inflation.
If the economy isn’t growing at a healthy pace, the Bank of Canada can lower interest rates to encourage lending and purchasing. If the economy is growing too quickly, it raises the interest rate to slow things down.
Impact of lower and higher interest rates
Lower interest rates
- Lower interest rates on loans like mortgages and lines of credit
- Less interest on savings
- People spend more money
- Economy grows
Higher interest rates
- Higher interest rates on loans and mortgages
- People and businesses borrow less money
- People save more money and spend less
- Economy slows
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Start your free trial todayBank of Canada: Rate announcement dates for 2026
The Bank of Canada has a fixed schedule of rate announcement dates, when it announces the current policy and overnight target rate. In 2025, these dates are:
- Wednesday, January 28
- Wednesday, March 18
- Wednesday, April 29
- Wednesday, June 10
- Wednesday, July 15
- Wednesday, September 2
- Wednesday, October 28
- Wednesday, December 9
How does the Bank of Canada affect mortgage rates?
When you take out a mortgage, you’re borrowing money from a financial institution to fund the purchase of your home.
The more expensive it is for your bank to get the money to loan to you, the higher your interest rate is going to be.
When the Bank of Canada raises its overnight rate, financial institutions raise their rates to cover the costs of borrowing. When the bank lowers its rate, banks pay less to borrow money, so they will also charge you less.
When you take out a mortgage, the interest rate includes the base lending amount (the Bank of Canada’s overnight rate) in addition to your financial institution’s fees. The latter includes things like administrative costs, insurance and profit for the bank.
If you’re locked into a fixed-rate mortgage, the change in the overnight rate will not affect you — unless you’re nearing your renewal date. If you are renewing, you might find yourself paying more (or less) for your mortgage than you previously had.
If you have a variable-rate mortgage, you are much more vulnerable to changes in the overnight rate. As with any mortgage, the amount you pay each month goes to both the principal and the interest of your loan.
If your mortgage is capped and the bank increases its overnight rate, you will pay the same amount of money each month with a variable-rate mortgage, but now more money will be going to the interest payment rather than the principal.
If your mortgage is uncapped, then you will see the total cost per month rise.
The Bank of Canada’s impact on the housing market
Because the Bank of Canada is instrumental in determining the cost of mortgages, it also directly impacts the country’s housing market.
When interest rates are low, more people will be interested in borrowing money to purchase a home. They can also afford to borrow more money. This creates a seller’s market, as demand is high and there will be many potential buyers for a single home. Because of this sellers can set higher prices for their homes, and buyers will be willing to pay it.
When interest rates are high, fewer individuals will want to take on the additional costs of borrowing money. When people want to sell their home, they’ll find that high prices are a deterrent to the smaller pool of prospective buyers. This drives down the price of buying a home, creating a buyer’s market.
Other areas impacted by the BoC's overnight rate
Home Equity Lines of Credit (HELOC)
HELOCs are tied directly to the Bank of Canada’s overnight rate. Often you will see a HELOC’s rate advertised as “prime plus 1%” or “prime plus one,” for example. This means that the percentage you pay in interest is the bank’s overnight rate, plus an additional 1%.
With the current, October 2025 overnight rate of 2.25%, a “prime plus 1%” HELOC would have an interest rate of 3.25%.
This could mean a difference of hundreds — even thousands — of dollars a month.
Credit cards
Some credit cards offer interest rates that are tied to the overnight rate as well. These are often lower-interest or variable APR (annual percentage rate) credit cards. You might see them advertised as offering rates such as “prime plus 4.50% to 12.75%” or “prime plus 9.99%.”
Auto loans
Auto loans function in much the same way as mortgages. New fixed-rate loans are in line with the prime rate, and variable-rate loans will shift with the prime rate’s movements.
Be sure to check with your auto loan lender to determine how much impact changes in the prime rate will have on you.
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Bank of Canada overnight rate history
| Date | Prime Rate | BoC Overnight Rate | Change |
|---|---|---|---|
| December 2025 | 4.45% | 2.25% | -- |
| October 2025 | 4.45% | 2.25% | -0.25% |
| September 2025 | 4.70% | 2.50% | -0.25% |
| July 2025 | 4.95% | 2.75% | -- |
| June 2025 | 4.95% | 2.75% | -- |
| April 2025 | 4.95% | 2.75% | -- |
| March 2025 | 4.95% | 2.75% | -0.25% |
| January 2025 | 5.20% | 3.00% | -0.25% |
| December 2024 | 5.45% | 3.25% | -0.50% |
| October 2024 | 5.95% | 3.75% | -0.50% |
| September 2024 | 6.45% | 4.25% | -0.25% |
| July 2024 | 6.70% | 4.50% | -0.25% |
| June 2024 | 6.95% | 4.75% | -0.25% |
| April 2024 | 7.20% | 5.00% | -- |
| March 2024 | 7.20% | 5.00% | -- |
| January 2024 | 7.20% | 5.00% | -- |
| December 2024 | 7.20% | 5.00% | -- |
| October 2023 | 7.20% | 5.00% | -- |
| September 2023 | 7.20% | 5.00% | -- |
| July 2023 | 7.20% | 5.00% | +0.25% |
| June 2023 | 6.95% | 4.75% | +0.25% |
| April 2023 | 6.70% | 4.50% | -- |
| March 2023 | 6.70% | 4.50% | -- |
| January 2023 | 6.70% | 4.50% | +0.25% |
| December 2022 | 6.45% | 4.25% | +0.50% |
| October 2022 | 5.95% | 3.75% | +0.50% |
| September 2022 | 5.45% | 3.25% | +0.75% |
| July 2022 | 4.70% | 2.50% | +1.00% |
| June 2022 | 3.70% | 1.50% | +0.50% |
| April 2022 | 2.70% | 1.00% | +0.75% |
| March 2020 | 2.45% | 0.25% | -0.50% |
| March 2020 | 2.95% | 0.75% | -0.50% |
| March 2020 | 3.45% | 1.25% | -0.25% |
| October 2018 | 3.95% | 1.50% | -- |
| July 2018 | 3.70% | 1.50% | +0.25% |
| January 2018 | 3.45% | 1.25% | +0.25% |
| September 2017 | 3.20% | 1.00% | +0.25% |
| July 2017 | 2.95% | 0.75% | +0.25% |
| July 2015 | 2.70% | 0.50% | -0.25% |
| January 2015 | 2.85% | 0.75% | -0.25% |
| September 2010 | 3.00% | 1.00% | +0.25% |
| July 2010 | 2.75% | 0.75% | +0.25% |
| June 2010 | 2.50% | 0.50% | +0.25% |
| April 2009 | 2.25% | 0.25% | -0.25% |
| March 2009 | 2.50% | 0.50% | -0.50% |
| January 2009 | 3.00% | 1.00% | -0.50% |
| December 2008 | 3.50% | 1.50% | -0.75% |
| October 2008 | 4.00% | 2.25% | -0.25% |
| October 2008 | 4.50% | 2.50% | -0.50% |
| April 2008 | 4.75% | 3.00% | -0.50% |
| March 2008 | 5.25% | 3.50% | -0.50% |
| January 2008 | 5.75% | 4.00% | -0.25% |
| December 2007 | 6.00% | 4.25% |
History of Bank of Canada rate policy
- What happens to the average Canadian when Bank of Canada increases interest rates (June 28, 2023)
- How interest rate hikes puts pressure on home buyers (Dec 7, 2022)
- BoC supersized rate hike (July 13, 2022)
Bank of Canada FAQs
What is the Bank of Canada?
The Bank of Canada is responsible for promoting “the economic and financial welfare of Canada.” As Canada’s national bank, it accomplishes this through a variety of ways.
Monetary policy: The policies set out by the bank help circulate money and stabilize inflation. Much of this is accomplished by setting the policy interest rate.
Financial system: The bank ensures that financial systems operate smoothly and that transactions performed within these are ethical and secure.
Currency: The physical money we use every day is designed and distributed by the bank.
Funds management: The bank manages the country's foreign exchange reserves and public debt programs.
Retail payments supervision: The bank supervises payment service providers for retail businesses.
What is the Bank of Canada interest rate (aka: target rate)?
The Bank of Canada establishes its policy interest rate, or overnight rate, as a means to control inflation.
The rate set by the bank establishes the lending rate used by many other financial institutions. It affects the interest rate of things like mortgage and lines of credit used by your personal bank.
The higher it costs for banks to lend and borrow money between themselves, the higher you’ll pay in interest when borrowing. As the overnight rate goes down, you can expect to pay less in interest as well.
— with files from Romana King and James Battiston
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Leslie Kennedy
Senior Content Editor
Leslie Kennedy served as an editor at Thomson Reuters and for Star Media Group, followed by a number of years as a writer and editor and content manager in marketing communications, before returning to her editorial roots. She is a graduate of Humber College’s post-graduate journalism program and has been a professional writer and editor ever since.
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