Canada Prime Rates

October 28 rate hike: why prime rates rise and what comes next

The Bank of Canada raised its policy rate by 25 basis points to 2.50%. A matching increase by lenders would take the commonly quoted prime rate from 4.45% to 4.70%, raising borrowing costs on products linked to prime. Savers could benefit from better deposit offers, although those increases are not certain.

What drove the hike and what it means for prime rates

• The hike targets future inflation pressures: high fuel prices are raising production and transportation costs. Businesses have largely absorbed these increases, but Bank surveys suggest more will be passed on to consumers over the next year.
• Core inflation remains contained, but the outlook has worsened: most core measures remain close to 2%, yet the Bank now expects headline inflation to average 3% in 2027 and return to 2% around mid-2028. Stronger-than-expected economic growth also gives it more room to act.
• Further hikes are possible, rather than predetermined: persistent energy costs and greater cost pass-through could prompt additional increases. Lower energy prices or weaker demand could support a hold. The Bank will assess conditions one meeting at a time.
• Prime-linked borrowing becomes more expensive when lenders raise prime: rates rise on variable mortgages, HELOCs and other prime-linked credit. Adjustable mortgage payments increase; borrowers with fixed payments pay more interest and reduce their principal more slowly. Existing fixed-rate mortgages are unchanged during their term.
• Savers could benefit, but increases are not certain: institutions may raise savings-account rates or rates on newly purchased GICs, but there is no guarantee. Existing fixed-rate GICs keep their contracted rate.

The Bank has taken a precautionary step, without committing to a series of hikes. The next moves in policy and prime rates will depend on whether inflation pressures spread and how the economy responds to energy costs and trade uncertainty.

The Prime rate in Canada is currently 4.70%. The Prime rate is the interest rate that banks and lenders use to determine the interest rates for many types of loans and lines of credit. These can include credit cards, HELOCs, variable-rate mortgages, car and auto loans, and much more. If you have any of these loans, changes in the prime rate will also change your debt payments and thus your GDS and TDS ratios.