The Bank of Canada policy interest rate, also known as the overnight rate, is 2.5% as of today, Oct 28, 2025.
The Bank of Canada uses the overnight rate to control inflation or boost the economy. When the overnight rate is increased, it gets more expensive for banks to borrow money so they raise their rates to cover those costs.
One of those rates is the prime interest rate, or prime lending rate – the interest rate used by financial institutions to set the rates they charge for loans, mortgages, and lines of credit.
The Bank of Canada shares its target overnight rate 8 times a year. The most recent change occurred on September 17, 2025, when it was lowered to 2.5% from 2.75%, where it has been since March 2025.
Key Takeaways
- The overnight rate is the target for what banks charge one another to borrow money in the overnight market.
- It influences the prime rate that banks use to set their interest rates.
- The Bank of Canada announces its overnight rate on 8 scheduled dates per year.
- Variable mortgage rates go up and down based on the overnight rate and subsequent changes to prime rate.
What is the overnight lending rate?
The overnight rate is the target interest rate for lending money in the overnight market – where Canadian financial institutions borrow money from each other for one day to balance their payments.
As the overnight rate increases, it gets more expensive for banks to borrow money. Alternatively, if the rate decreases, borrowing becomes more affordable for banks. As a result, financial institutions base their prime lending rate off this overnight rate, and adjust their interest rates accordingly.
As you can see, changes to the overnight rate have a trickle-down effect for consumers. The Bank of Canada leverages this rate to direct the economy by getting consumers to spend less (higher rates) or spend more (lower rates).
How does the overnight rate affect the prime rate in Canada?
The Bank of Canada pre-sets a schedule of 8 dates a year when they issue a press release announcing any adjustments to the policy interest rate.
If the Bank increases the overnight rate, financial institutions will adjust their prime lending rate to make up for this increase. These changes reach the consumer in the form of increased interest rates on mortgages, loans, lines of credit, and even savings accounts and GICs.
While the rate that customers are charged is based on the prime interest rate, it’s also set based on the specific product and the applicant’s unique financial circumstances and credit score.
Each week, the Bank of Canada publishes the country’s official prime interest rate, which is calculated as an average of the prime interest rate set by each of the 6 big chartered banks.
How does the overnight rate impact mortgage rates in Canada?
If the Bank of Canada adjusts the overnight rate, the interest rate on variable rate mortgages offered by banks and other lenders will change in response to the new prime rate. Lenders and banks may or may not adjust the advertised rates on fixed-term mortgages, as those financial products are priced differently and are affected by several factors other than prime.
Here are some examples of how an increase to this rate can impact different types of existing mortgages:
| Type of mortgage | Impact |
|---|---|
| Variable rate mortgages | * Either your payments will increase or a greater proportion of your payment will be used to cover interest |
| Fixed rate mortgages | * Your payments (and interest rate) will remain unchanged for the length of your term |
FAQ
What is the Bank of Canada overnight rate?
Currently, the Bank of Canada policy interest rate is 2.5%. It’s the target rate put forth by the Bank of Canada for what banks should charge each other for loans. Banks adjust their prime and interest rates accordingly.
Is the overnight rate the same as prime rate?
The overnight rate informs the prime rate, but they’re different in key ways. The overnight rate is the target rate banks use to borrow from each other, whereas the prime rate influences the rate consumers are charged for financial products.
When is the next Bank of Canada overnight rate announcement?
The next Bank of Canada announcement is scheduled for October 29, 2025. To keep track of upcoming announcements, take a look at the Bank of Canada’s full list of scheduled dates on its policy interest rate page.
How does the policy interest rate impact inflation?
The BOC uses the policy interest rate to help boost or slow down the economy when inflation is above or below its target of 2%. For example, when inflation is high, they increase this rate to bring spending down.
Should I lock into a fixed mortgage rate when rates are high?
It depends. A fixed mortgage can give you peace of mind because you’ll be paying the same rate for a defined term. This shields you from the increase in rates, but you’ll get less flexibility if rates go down.
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