Canada’s prime rate is the rate that most major banks use to establish their lending rates. Read on to find out what the prime rate in Canada is, how it is determined, and most importantly, how it affects you.
Frequently asked questions
Canada’s prime rate, the rate that most major banks use to establish their lending rates, is currently 2.45%. The only other time the prime rate has been this low in recent times was following the 2008 financial crisis. The current low rate is the result of a strategy pushed by the Bank of Canada at the beginning of the pandemic. The Bank of Canada leveraged its control of the overnight rate to encourage lower prime rates in the hopes of helping people fend off any potential financial hit from the pandemic with access to low credit. In late March 2020, the rate was cut three times and fell from 3.95% to the current 2.45% rate.
The Canadian prime rate has remained at 2.45% since it was cut three times in a row in early 2020 to address financial concerns during the pandemic. It is expected to remain stable through the end of 2021, but there are increasing signs that it may begin to rise in 2022. The Bank of Canada signaled in October that it would consider raising rates, including the overnight rate, by the second quarter of 2022. This would, in turn, cause banks to raise their prime rates but the timing is not certain. Inflation, economic growth and a possible resurgence of the pandemic as vaccine immunity wanes will all influence both the decision to raise rates and the timing of that increase.
There is no sure way to predict prime rates. And this type of prediction is even less certain in recent times as the ongoing Covid-19 pandemic and supply chain woes continue to plague the economy. Even the Bank of Canada is reluctant to make an exact prediction regarding the possibility or timing of a change in the prime rate.
The best way to anticipate any change in rates is to watch the Bank of Canada’s responses and announcements. Pay special attention to economic pressures such as inflation rates and GDP growth and outside forces such as the pandemic and possible climate-induced economic stressors. Canadian banks also issue reports that include Canadian prime rate forecasts. Economists continue to assess and discuss the possibility of prime rate increases and decreases, so watch for these pundits to speak out as well.