Prime Rate Outlook 2026: Will the Bank of Canada Raise Rates Later This Year?
As a mortgage broker, I’m often asked where interest rates are headed. After years of dramatic swings – from emergency pandemic cuts to sharp hikes to tame inflation – the Bank of Canada’s policy rate sits at 2.25 %, and banks’ prime rates hover around 4.45 %. For now, the central bank is signaling patience, but a look at economic forecasts shows a path that could include a prime‑rate increase late in 2026. Below I unpack the latest data, share predictions from leading economists, and offer guidance on what this could mean for your mortgage.
Where We Stand Today
The Bank of Canada’s decision on interest rates hinges on its two mandates: keeping inflation around 2 % and supporting sustainable economic growth. Several recent trends are shaping policy:
Slower growth and demographic shifts. RBC’s January economic update notes that Canada’s growth in 2026 will be driven entirely by per‑capita improvements because population growth is expected to be flat. As a result, the economy will grow modestly and unemployment should edge down.
Sticky inflation. RBC expects inflation to hover near the 2 % target but warns that core inflation may remain “somewhat sticky,” with energy and food prices vulnerable to supply shocks. This is part of the reason the bank sees no rate cuts in 2026 and only moderate hikes in 2027 unless inflation re‑accelerates.
Conflicting data. Mortgage Logic News recently observed that December’s inflation data delivered “mixed signals” and left many analysts scratching their heads. Confusing cross‑currents are one reason the Bank of Canada has called current rates “about right.”
For now, the Bank’s policy rate is at the low end of its neutral range, meaning it neither stimulates nor restrains the economy. The prime rate – which lenders use as the starting point for variable‑rate loans – will remain close to 4.45 % as long as the policy rate holds.
What the Experts Predict
Financial institutions and economists broadly agree that rates are likely to stay put through the first half of 2026, but some see hikes by year‑end. True North Mortgage compiled forecasts from major banks:
Economist/Bank | 2026 BoC policy‑rate forecast* | Comments |
|---|---|---|
| National Bank | 2.25 % through Q3; 2.75 % in Q4 | Sees the first quarter‑point hike in Q4 2026. |
| Scotiabank | Hold early 2026; 2.75 % by year‑end | Notes tariff uncertainty could delay the hike. |
| RBC | 2.25 % all year | Base‑case scenario is no change until 2027, but risk of hikes if core inflation stays high. |
| BMO | 2.25 % through 2026 | Expects any increases to come in 2027. |
| Desjardins | 2.25 % with potential hike to 2.5 % in Q4 | Warns that the Bank might lift rates sooner if inflation persists. |
*These forecasts refer to the Bank of Canada’s overnight policy rate. Because the prime rate typically sits 2.2 percentage points above the policy rate, a policy rate of 2.75 % would imply a prime rate around 4.95 %.
Why Rates Could Rise
Several factors could push the Bank of Canada to raise the policy rate (and, by extension, prime rates) later in 2026:
Persistently high inflation. If core inflation refuses to fall toward 2 % – for example, because of sustained food and energy price shocks – the Bank may need to tighten policy sooner than planned. Mortgage Logic News highlighted that even small inflation surprises can unsettle markets and prompt speculation about rate changes.
Stronger‑than‑expected growth. RBC warns that if economic activity picks up and the output gap closes faster than expected, rate hikes could be pulled into 2026. A rebound in consumer spending or a quick resolution to trade disputes could increase demand and put upward pressure on prices.
Housing market resilience. After two years of cooling, Canada’s housing market may start to heat up again in the second half of 2026. Rising home prices and renewed borrowing could prompt the Bank to lean against excess leverage.
Global developments. Geopolitical tensions or renewed trade wars could affect commodity prices and supply chains. True North’s report notes that tariffs have already pushed rates lower by dampening growth; a resolution could remove that brake and allow inflation to re‑accelerate.
What This Means for Homeowners and Buyers
If the Bank of Canada lifts its policy rate late in 2026, banks will likely raise their prime rates by an equivalent amount. Variable‑rate mortgage holders would see their interest costs increase almost immediately, while those with adjustable‑rate loans might have their monthly payments reset. Even a 0.25‑point increase could add $15–20 per month to the payment on a $400,000 mortgage.
Fixed‑rate mortgages may be less affected in the short term because they are tied to bond yields rather than the prime rate. However, bond markets often anticipate policy moves.
Here’s what you can do:
Stress‑test your budget. Use a mortgage calculator to see how a quarter‑point increase in the prime rate would impact your payments. This is particularly important if your mortgage is up for renewal in 2026.
Consider your term. If you’re in a variable‑rate mortgage and have little tolerance for payment fluctuations, you may want to explore fixed‑rate options before the possibility of a hike. On the other hand, variable rates may still outperform fixed rates over the long run if the economy remains soft.
Maintain an emergency fund. Higher borrowing costs can squeeze household budgets. Keeping a financial cushion ensures that you can handle unexpected increases.
Final Thoughts
At this point, most economists expect the Bank of Canada to hold the line on rates through the first half of 2026. The consensus view is that any prime‑rate increase would likely come in the fourth quarter, and even then it might be modest. Yet the outlook is far from certain. As Mortgage Logic News reminds us, economic data can be contradictory and even the Bank of Canada admits that the current rate is only “about right”.
As always, my role is to be your advocate. I stay on top of these trends so you don’t have to, and I translate them into practical advice tailored to your situation. If you have questions about how a potential prime‑rate increase could affect your mortgage – or if you’re planning a purchase or renewal later this year – let’s connect. Call me at 604‑762‑0762, email lyndsy@theplacetomortgage.com, or request a quote through my website. Together we’ll build a mortgage strategy that keeps you secure, no matter what happens with rates.