Rates and pricing

2% inflation target

Français : Cible d'inflation 2 %

Official Bank of Canada objective: maintain CPI between 1% and 3%, targeting 2%. Directly determines monetary policy direction and thus mortgage rates.

Definition

Since 1991, the Bank of Canada and the federal government renew every 5 years an inflation-targeting agreement, currently at 2% ± 1 percentage point (range 1-3%). This objective guides all policy rate decisions.

The Consumer Price Index (CPI) is the primary measure. The BoC also monitors core inflation measures (CPI-median, CPI-trim) that exclude volatile components (energy, food) to detect underlying trends.

Direct mortgage impact: when inflation exceeds 3%, the BoC raises rates to slow the economy → higher variable rates and renewals. When inflation falls below 1%, the BoC cuts rates to stimulate → lower variable rates.

Policy rate (overnight rate)
Target overnight rate set by the Bank of Canada. Directly influences the prime rate and variable mortgage rates.
Bank of Canada monetary policy
Set of Bank of Canada decisions to achieve its 2% inflation target. The main tool is the policy rate, which influences all interest rates in the country.
Consumer Price Index (CPI)
Statistical measure of cost changes in a representative basket of goods and services for Canadian households. Primary inflation indicator guiding Bank of Canada rate decisions.
Variable rate
Rate indexed to the bank prime rate (prime ± spread). Moves with Bank of Canada decisions; breakage penalty capped at 3 months interest.

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