Bank of Canada raises its policy rate to 2.5%

The Bank of Canada raised its policy rate by a quarter of a point to 2.5% on October 28, its first increase since July 2023. The Bank said it acted to reduce the risk that high energy prices spread broadly to other prices.

NOW Toronto reported that fixed mortgage rates are not directly tied to the policy rate and do not change automatically. Clay Jarvis of RateHub said variable mortgage rates follow prime. Variable-rate borrowers could face higher costs. The five-year Government of Canada bond yield, which is what Ottawa pays to borrow for five years, was 3.57% on October 27, up from 2.62% a year earlier, according to the Bank of Canada.

CMHC, a federal Crown corporation that supports Canada’s housing market, said the Toronto-region mortgage arrears rate has more than quadrupled from post-pandemic lows, though they remain low. The Bank said further increases may be needed, but it will proceed carefully. Its next announcement is December 9.

Sources: Bank of Canada · NOW Toronto · Canada Mortgage and Housing Corporation (CMHC)