Definition
The prime rate (or base rate) is the reference interest rate that Canadian banks use to price their variable-rate credit products.
**Relationship with policy rate**: - The prime rate follows the BoC policy rate with a delay of 1-3 business days - Historically: prime rate = policy rate + 2.20% - This relationship can fluctuate slightly, but the +2.20% convention is very stable
**Example (2024)**: - BoC policy rate: 4.75% - Prime rate: 6.95% - Typical variable mortgage: prime - 0.75% = 6.20%
**Impact on borrowers**: - Each 25 bps (quarter point) change in the policy rate changes the variable payment - On a $400,000 mortgage, 25 bps represents approximately $55-65/month - Variable borrowers see their payment adjusted generally within 30 days following the BoC decision
**BoC decision dates**: 8 rate announcements fixed per year (approximately every 6 weeks), with Monetary Policy Report (MPR) at the 4 quarterly announcements. To be monitored by any variable-rate borrower.