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Understanding the Role of the Bank of Canada in Setting Mortgage Rates

March 24, 20233 min read


If you're planning to buy a house or refinance your existing mortgage, you're likely keeping a close eye on mortgage rates. But have you ever wondered how these rates are set and who decides them? In Canada, the Bank of Canada plays a crucial role in determining mortgage rates. In this article, we'll take a closer look at the role of the Bank of Canada in setting mortgage rates and how it impacts the economy and the average borrower.

The Role of the Bank of Canada in Setting Mortgage Rates:

What is the Bank of Canada and what is its role in setting mortgage rates?

The Bank of Canada is the central bank of Canada and is responsible for managing the country's monetary policy. One of the key functions of the Bank is to set the target for the overnight interest rate, which is the interest rate at which banks lend and borrow money from each other on an overnight basis.

The overnight interest rate is a crucial factor in determining mortgage rates in Canada. When the Bank of Canada sets the overnight interest rate, it indirectly affects the cost of borrowing for banks, which, in turn, influences the interest rates offered to borrowers.

What factors influence mortgage rates?

While the Bank of Canada's overnight interest rate plays a significant role in determining mortgage rates, there are other factors that also come into play. These include:

  • Economic conditions: The state of the economy, including inflation rates, GDP growth, and employment levels, can impact mortgage rates. In general, a strong economy with low inflation rates and high employment levels will lead to lower mortgage rates.

  • Market competition: Competition among lenders can also impact mortgage rates. When there is high competition, lenders may offer lower rates to attract borrowers.

  • Bond yields: Mortgage rates are closely tied to bond yields, which reflect the interest rates on government bonds. When bond yields rise, mortgage rates tend to rise as well.

How does the Bank of Canada's decisions impact borrowers and the economy?

The Bank of Canada's decisions on the overnight interest rate can have a significant impact on borrowers and the economy as a whole. When the Bank raises interest rates, borrowing becomes more expensive, which can lead to lower consumer spending and slower economic growth. Conversely, when the Bank lowers interest rates, borrowing becomes cheaper, which can stimulate economic growth but also lead to higher inflation rates.


Q: How often does the Bank of Canada change the overnight interest rate?

A: The Bank of Canada meets eight times a year to review and announce any changes to the overnight interest rate.

Q: Can borrowers negotiate mortgage rates with lenders?

A: Yes, borrowers can negotiate mortgage rates with lenders. However, the rates offered will still be influenced by factors such as the overnight interest rate and market competition.

Q: How can borrowers stay informed about changes in mortgage rates?

A: Borrowers can stay informed about changes in mortgage rates by following financial news and updates, consulting with their lender or mortgage broker, and monitoring online rate comparison tools.


Understanding the role of the Bank of Canada in setting mortgage rates is crucial for anyone who is planning to buy a house or refinance their mortgage. While the Bank's decisions on the overnight interest rate are a key factor in determining mortgage rates, borrowers should also be aware of other factors that can impact rates, such as economic conditions and market competition. 

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