Bank of Canada on hold, Fed hiking: what moves in a Canadian plan
Two central banks decided two weeks apart and went different ways. On September 2, 2026, the Bank of Canada held its policy rate at 2.25% for the seventh decision in a row. On September 16, the US Federal Reserve raised its target range by a quarter point to 3.75%–4.00%, its first increase since 2023.
The Bank of Canada’s next decision is October 28, with a new Monetary Policy Report. Its own communications show a Governing Council more worried about inflation, with no commitment to a direction. Below is what the Bank said, which parts of a Canadian retirement plan respond to the overnight rate, which respond to bond markets, and one tax rate that follows its own quarterly schedule.
What the Bank of Canada said
The September 2 press release held the target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%. The drivers it described:
- Inflation near 3%, mostly gasoline. CPI inflation “has been hovering around 3% in recent months, mainly because of persistently higher gasoline prices.” Excluding gasoline, inflation was 2.2% in July, and core measures remained close to 2%.
- Upside risks rising. With the Middle East conflict ongoing and high refinery margins, the Bank said “upside risks to the Bank’s inflation forecast have increased.” New US tariffs and Canadian counter-tariffs could also feed into consumer prices over time.
- Growth recovering, unevenly. GDP grew 3.3% in the second quarter after a very weak first quarter, unemployment edged down to 6.4% in July, and the Bank still sees excess supply in the economy.
The guidance itself was neutral: Governing Council “is prepared to adjust monetary policy as needed.” The summary of deliberations, published two weeks later, is more specific about what would trigger a move. Members agreed that if higher energy prices spilled over into other parts of the CPI, “it could require a monetary policy response to prevent broad-based inflation from setting in.”
The Bank is not signalling a hike. It is describing the conditions under which one becomes possible, with the Fed already having moved.
Variable-rate debt: prime follows the overnight rate
Prime rates are set by each lender, but they move with the Bank of Canada’s target. The Bank’s data series showed the prime rate at 4.45% at the end of September. Home equity lines of credit and variable-rate mortgages are generally priced at prime plus or minus a spread. Any change on October 28 would flow through to them within days.
Each quarter-point change adds or removes about $250 a year of interest per $100,000 borrowed on an interest-only basis. On a $200,000 HELOC, that’s $500 a year per move. For retirees who keep a HELOC as a standby reserve instead of a running balance, the rate matters only when it’s drawn. Our guide on home equity and HELOCs in retirement covers both uses.
Bond yields: already moving without the Bank
Government of Canada bond yields are set by the market, not the Bank. The Bank’s September statement noted that “long-term bond yields have moved up globally, including in Canada.” Its benchmark yields on October 1, 2026:
| Term | 2-year | 5-year | 10-year | Long-term | Real Return Bond (long) |
|---|---|---|---|---|---|
| Yield | 3.27% | 3.62% | 3.94% | 4.28% | 1.97% |
Source: Bank of Canada, benchmark bond yields, October 1, 2026.
Every nominal yield on that curve sits above the 2.25% overnight rate, and the curve rises with term. The bond market is pricing in inflation and future policy moves the Bank hasn’t made. Products priced off the bond market rather than the overnight rate, such as fixed-rate mortgages and GICs, tend to follow this curve.
In a retirement projection, starting yields matter more than the overnight rate. A 10-year Government of Canada bond bought at 3.94% and held to maturity earns about 3.94% a year, whatever happens to its price along the way. Our guide on retirement return assumptions and our post on FP Canada’s 2026 projection assumptions cover how planners turn yields into the return figure a projection uses.
The prescribed rate: 3%, and how the next one is set
One rate in a Canadian plan follows neither the Bank of Canada nor the bond market directly: the CRA prescribed interest rate. It’s the benchmark for taxable benefits on low-interest loans. For many couples, it’s also the rate that makes a prescribed-rate loan between spouses work.
The CRA set it at 3% for both July–September and October–December 2026.
The formula is in section 4301 of the Income Tax Regulations. The rate is the average yield on 3-month Government of Canada Treasury bills sold at auction during the first month of the preceding quarter, rounded up to the next whole percentage point. Two consequences follow:
- The January–March 2027 rate is set by October 2026’s Treasury bill auctions. That’s this month. The Bank’s data shows the 3-month auction average at 2.39% on September 22. An average anywhere above 2.00% and up to 3.00% rounds to 3%.
- The round-up creates steps. Because the average is rounded up to a whole number, the prescribed rate moves in one-point steps. A modest change in Treasury bill yields can leave it unchanged, while a move across a whole-number boundary shifts it a full point.
Why the rate at the time of the loan matters
Canada’s attribution rules generally tax investment income on money given or lent to a spouse back to the person who provided it. Subsection 74.5(2) of the Income Tax Act exempts a loan from those rules if:
- interest is charged at a rate at least equal to the lesser of the prescribed rate in effect at the time the loan was made and the rate arm’s-length parties would have agreed to, and
- each year’s interest is actually paid no later than 30 days after the end of the year.
The test refers to the prescribed rate when the loan was made, not the current one. A loan made while the prescribed rate is 3% is measured against 3% for as long as it’s outstanding, even if the prescribed rate later rises or falls. Interest must be paid every year by the 30-day deadline; missing a single year’s payment means the exemption doesn’t apply for that year or any later year.
As an illustration, a $100,000 loan at 3% requires $3,000 of interest to be paid by January 30 each year. The lending spouse reports that interest as income, while the investment income earned on the borrowed money is taxed in the borrowing spouse’s hands. Whether that division helps depends on the gap between the two spouses’ tax rates and what the investments earn above 3%. Our guide on splitting savings between couples covers the broader income-splitting picture, and pension income splitting covers the tools available once retirement income starts.
What to watch next
- October 2026 Treasury bill auctions: these set the CRA prescribed rate for January–March 2027.
- October 27–28, 2026: next Federal Reserve meeting.
- October 28, 2026: Bank of Canada decision and Monetary Policy Report.
- December 9, 2026: the Bank of Canada’s last scheduled decision of 2026.
These dates affect a plan’s inputs: the cost of variable-rate borrowing, fixed-income yields, and the benchmark rate for family loans. cinder.fi’s Canadian retirement calculator lets you change return and inflation assumptions and rerun your plan when they shift. The mortgage payoff calculator shows what prepayments are worth at your actual rate.