What a seventh straight hold at 2.25% means for variable mortgages, HELOCs and the market bets now pointing to higher rates in 2027.
The Bank of Canada rate hold announced on September 2, 2026 left the overnight policy rate at 2.25%, with the Bank Rate at 2.50% and the deposit rate at 2.20% — the seventh consecutive decision without a move since the central bank last cut in October 2025. For households, the practical result is that Canada’s prime rate stays at 4.45% and nothing changes this month on prime-linked debt.
What did change is the direction of the conversation. A second quarter far stronger than expected, inflation stuck near 3% on energy costs, and a fresh round of tariffs have pushed market pricing away from another cut and toward the possibility that the next move — whenever it comes — is up rather than down.
Seventh Straight Hold Since the October 2025 Cut
The policy rate has been parked at 2.25% since late October 2025, when the Bank’s final quarter-point cut of that easing cycle took effect. Canada’s major lenders followed on October 29, 2025, dropping prime from 4.70% to 4.45%, where it has sat ever since.
That is a long stretch of stability by the standards of the past four years. Prime peaked at 7.20% in July 2023 after the 2022–23 tightening cycle, then fell in eight steps between June 2024 and October 2025 to its current level.
| Effective date | Prime rate | Change |
|---|---|---|
| October 29, 2025 | 4.45% | -0.25% |
| September 17, 2025 | 4.70% | -0.25% |
| March 13, 2025 | 4.95% | -0.25% |
| January 29, 2025 | 5.20% | -0.25% |
| December 11, 2024 | 5.45% | -0.50% |
| October 23, 2024 | 5.95% | -0.50% |
Why Prime Sits at 4.45% Across the Big Six
Prime is set by each lender individually, not by the central bank. In practice, competitive pressure keeps the Big Six aligned: RBC, TD, CIBC, BMO, Scotiabank and National Bank are all posting 4.45% as of mid-September 2026. Since 2015, prime has generally run 2.2 percentage points above the policy rate, and that relationship has held through this cycle.
One well-known exception matters for borrowers shopping mortgages. TD applies a separate mortgage prime rate to its variable products — 4.60% as of September 2026 — so a quoted discount from TD is not directly comparable to the same discount quoted by a lender using 4.45%.
History also shows lenders do not always pass through the full move. In January 2015 the Bank cut 25 basis points and the major banks lowered prime by only 15. In March 2020, several banks widened the spread on variable mortgages so that borrower rates barely moved even as prime fell. The reference price is shared; the markup is not.
A 3.3% Second Quarter and a 6.4% Jobless Rate
The economic backdrop behind the hold is noticeably firmer than it was a year ago. Output grew 3.3% in the second quarter, with contributions from consumer spending, housing activity, exports and business investment. The labour market improved alongside it, with unemployment falling to 6.4% in July.
The Bank still describes the economy as carrying excess supply, and labour demand as subdued — the reason a hold, rather than a pivot, was the outcome. But a quarter of that strength materially weakens the case for further easing, which is why the debate has moved on from “how many more cuts” to “how long until the first hike.”
Energy Inflation Keeps CPI Near 3% While Core Sits at 2%
Headline CPI inflation remains around 3%, and the Bank attributes most of that gap to elevated oil and gasoline prices linked to the ongoing US–Iran conflict. Strip gasoline out and inflation was 2.2% in July, while the Bank’s preferred core measures stayed close to the 2% target.
That split is the crux of the decision. So far there is little evidence that higher energy costs are feeding broadly into other prices, so the central bank can reasonably look through them. The risk, as the Bank itself notes, grows the longer expensive oil persists — and energy costs eventually show up in everything from freight to fares, a dynamic visible in reporting on how fuel and capacity shifts feed through to Canadian airfares.
Tariffs Push Inflation and Growth in Opposite Directions
New US tariffs and Canadian counter-tariffs are the second complicating factor, and they cut both ways. They raise input costs for businesses and consumer prices at the till, which argues for tighter policy. At the same time, they discourage capital spending and hiring, which argues for looser policy.
That tension is already visible in corporate Canada, where exporters have been recalculating their US exposure — as seen in the ongoing fallout over tariff pressure on Bombardier’s US sales. For the central bank, a shock that lifts prices while slowing demand is the hardest kind to respond to, and it is a legitimate reason to sit still.
CORRA Forwards Now Point to Hikes, Not Cuts
Market pricing has moved decisively. Forward CORRA — the Canadian Overnight Repo Rate Average used to infer expected policy settings — implies roughly an 80% probability of another hold at the October meeting, and increasingly prices a higher policy rate in 2027.
The table below reflects market-implied expectations as reported from forward CORRA pricing on September 9, 2026. It is a snapshot of where traders are positioned, not a forecast from the Bank of Canada, and it changes week to week as prices move.
| Date | Implied policy rate | Implied prime rate | 5-year variable | 5-year fixed |
|---|---|---|---|---|
| Sept 12, 2026 | 2.25% | 4.45% | 3.30% | 3.94% |
| Dec 31, 2026 | 2.50% | 4.70% | 3.60% | 4.36% |
| June 30, 2027 | 3.00% | 5.20% | 4.10% | 4.44% |
| Dec 31, 2027 | 3.25% | 5.45% | 4.35% | 4.49% |
Read literally, that pricing implies a quarter-point increase in prime by the end of 2026 and a cumulative three-quarter-point rise by mid-2027. Market expectations of this kind are frequently wrong about timing, and should be treated as a scenario to plan against rather than a schedule.
What Prime-Linked Borrowers Actually Pay This Month
For anyone holding a variable mortgage, a HELOC, a variable credit card or a floating auto loan, the September decision means the rate on the statement does not move. The arithmetic is straightforward once you know your spread:
- Variable mortgages: a contract priced at prime + 0.20% costs 4.65% today. A 25-basis-point rise in prime would take it to 4.90%.
- HELOCs: a common structure is prime + 0.50%, which works out to 4.95% at today’s prime.
- Variable-rate credit cards: products priced at prime plus a large markup — for example prime + 4.99% to prime + 8.99% — currently land in the 9.44% to 13.44% range.
- Fixed-payment variable mortgages: the payment amount usually stays the same when prime moves; what changes is the split between interest and principal, and therefore how much balance remains at renewal.
Exact spreads, product terms and lender-specific prime rates vary, so confirm figures with your own lender before making a decision based on them.
Fixed Rates Are Moving on Bond Yields, Not the Policy Rate
Fixed mortgage pricing takes its cue from Government of Canada bond yields rather than the overnight rate, and those yields have been rising. Average rates across a basket of ten lenders as of September 12, 2026 show fixed terms drifting upward while variable pricing held flat.
- 1-year fixed: 5.28% average, 3 basis points higher over 30 days.
- 2-year fixed: 4.84% average, up 7 basis points.
- 3-year fixed: 4.65% average, up 7 basis points.
- 5-year fixed: 4.69% average, up 10 basis points.
- 5-year variable: 3.95% average, unchanged.
The gap between the average five-year variable and five-year fixed is the trade-off borrowers now face: a lower starting rate that follows prime wherever it goes, against a higher locked rate that is insulated from a 2027 hiking cycle.
Where 4.45% Sits Against the Bank’s Neutral Range
The Bank estimates the neutral real interest rate — the level that neither stimulates nor restrains the economy — at between 0.25% and 1.00%. Assuming inflation near the 2% target, that implies a neutral nominal policy rate of roughly 2.25% to 3.00%, and a neutral prime of about 4.45% to 5.00% given the usual spread.
In other words, current settings sit at the very bottom edge of neutral rather than in clearly stimulative territory. That framing helps explain why policymakers are comfortable waiting: rates are not tight, and there is no urgent need to add stimulus into a quarter that already grew 3.3%.
October 28 Decision and the Next Monetary Policy Report
The next scheduled interest rate announcement is October 28, 2026, and it will be accompanied by a fresh Monetary Policy Report — the quarterly document containing the Bank’s updated growth and inflation projections. That report, more than the rate line itself, is where the market will look for confirmation of whether the easing cycle is formally finished.
The variables to watch between now and then are the ones that drove this decision: whether oil prices stay elevated, whether tariff costs start showing up in core inflation, and whether the labour market’s July improvement holds.
Frequently Asked Questions
Does the Bank of Canada set the prime rate?
No. Each bank sets its own prime rate, but they generally track the Bank’s policy rate because it drives their cost of funds. Since 2015, prime has typically run 2.2 percentage points above the policy rate.
Why is TD’s rate different from the other major banks?
TD uses a separate mortgage prime rate for its variable-rate mortgage products, set at 4.60% as of September 2026, compared with its general prime rate of 4.45%.
Will my variable mortgage payment change after this decision?
Not as a result of the September 2 hold, since prime is unchanged. Note also that most variable mortgages in Canada have fixed payments, so a future prime move typically changes the interest-versus-principal split rather than the payment amount.
Why are fixed mortgage rates rising if the policy rate is on hold?
Fixed rates are priced off Government of Canada bond yields, which have been climbing, while variable rates follow prime. The two can move in different directions at the same time.
Is a rate hike in 2027 confirmed?
No. Forward CORRA pricing implies higher rates in 2027 and roughly an 80% chance of a hold in October, but these are market expectations that shift with prices, not Bank of Canada guidance.
