Over the last 10 years, the Canadian prime interest rate has fluctuated significantly. From June 2009 to August 2010, the Bank of Canada’s key lending rate remained at 0.50%, before increasing to 1.0% in September 2010 and staying there until June 2015.
Since then, the rate has been steadily moving up and down as the central bank balances between supporting economic growth and keeping inflation low. In December 2018, the Canadian prime interest rate hit its highest level since April 2009 – 2.95%. This was a result of two consecutive increases from July to October which saw rates rise from 1.5% to 2.95%.
However, this period of increased rates was short-lived as the Bank of Canada began lowering their benchmark again in January 2019 following a sharp drop in global oil prices and weakening economic growth outside of Canada. The prime rate dropped steadily over several months, reaching 1.75% in March 2020 – one of its lowest levels recorded since 1950 – before increasing back to 2.45% in December 2020.
The most recent interest rate increase was largely seen as an attempt by the central bank to counter rising inflationary pressures resulting from a stronger than expected economic recovery and higher energy costs due to supply disruptions caused by COVID-19 pandemic restrictions across much of Canada earlier this year.
Looking forward, it is likely that we will see further changes to the Canadian prime interest rate over the next few years as the Bank of Canada responds to economic conditions both domestic and abroad, but only time will tell what kind of impact these adjustments will have on Canadian households with mortgages and other loan products linked to it.