What is the key interest rate?
The key interest rate (also known as the policy rate) is the Bank of Canada’s main tool for managing monetary policy. By raising or lowering the key interest rate, the Bank of Canada can influence various economic factors such as unemployment levels, consumer spending and the valuation of the Canadian dollar. However, the key rate is mainly used to keep inflation in check. If inflation is above its target range of 1-3%, the bank will raise interest rates. If inflation is below its target range, then the bank will lower interest rates.
What does it impact?
The Bank of Canada’s adjustments to the key interest rate not only guide the economy but also have an effect on the entire financial system. This rate serves as a benchmark for loans, mortgages, and business financing, directly impacting the cost of borrowing for Canadians.
Here are a few key areas impacted by adjustments to the key or policy rate:
Area of impact | Raising the key interest rate | Lowering the key interest rate |
Borrowing costs | Loans, mortgages, and credit cards get more expensive when banks raise their own rates (prime lending rate) to cover their own increased cost of borrowing. | Borrowing becomes cheaper when banks lower their prime lending rate, making it more attractive for consumers and businesses to take out loans. |
Savings and investment returns | If you have money in a variable rate savings account or investments such as [AF1] floating rate bonds, or money market funds, the amount you receive from your interest income will increase. | Any decrease to the policy rate will decrease the amount of interest income you receive from your savings and investment accounts. |
Housing market | With higher rates, fewer people will enter the housing market because borrowing becomes more expensive, reducing affordability for potential buyers. At the same time, existing mortgage owners with variable-rate loans or those renewing their fixed-term mortgages face higher monthly payments. | With lower rates, more people are likely to enter the housing market because borrowing becomes cheaper, increasing affordability for potential buyers. For existing mortgage owners, especially those with variable-rate loans or those renewing their fixed-term mortgages, lower rates mean reduced monthly payments. |
Inflation control | Increasing the key interest rate is used to help slow price increases and control or bring down inflation. Higher rates make borrowing and some debt repayment more expensive, which reduces disposable income and consumer spending. As fewer people can afford to spend, demand for goods and services falls, easing pressure on prices and helping to bring inflation down. | Reducing the key interest rate is used to stimulate economic growth and support inflation control when inflation is below its target. With reduced borrowing costs, consumers and businesses are encouraged to spend and invest, increasing demand for goods, services, and housing. This higher demand helps push prices upward, bringing inflation closer to the target range. |
The Canadian dollar | The Canadian dollar strengthens as higher rates attract foreign investment, making Canadian assets more appealing. A strong dollar makes imports cheaper but can hurt exporters by making their goods more expensive internationally. | The Canadian dollar weakens as lower rates deter foreign investors, who seek higher returns elsewhere. A weak dollar benefits exporters because Canadian goods become cheaper abroad, but it raises the cost of imports. |
Economic growth | Growth slows because higher rates reduce consumer and business spending due to the rising costs. This can prevent overheating in the economy but may lead to layoffs or reduced economic activity. | Growth picks up as cheaper borrowing encourages businesses to expand and consumers to spend as they have more disposable income. This can boost employment and economic activity but risks fueling inflation. |
A timeline of recent rate changes
Here are the last 10 years of rate changes:

When are the rate changes announced
Rate change announcements happen on eight pre-determined days during the calendar year. However, if there are special circumstances (for example, during the COVID-19 pandemic), the Bank of Canada has made other rate announcements outside of the eight preordained dates.
Below are the key interest rate announcement dates for 2025:
- Wednesday, January 29
- Wednesday, March 12
- Wednesday, April 16
- Wednesday, June 4
- Wednesday, July 30
- Wednesday, September 17
- Wednesday, October 29
- Wednesday, December 10