National Bank of Canada Raises Prime Rate 25 Basis Points to 4.70%
Key Facts
National Bank of Canada raised its prime rate 25 basis points to 4.70%, effective October 29, 2026, according to a statement published by the bank via Canada Newswire. The announcement came on the same day the Bank of Canada raised its overnight target rate to 2.5%, its first increase in more than three years. The Bank of Canada said its decision aims to limit the risk that sustained increases in energy prices will feed through to prices for other goods and services. National Bank of Canada’s prime-rate increase was a separate adjustment from the monetary policy decision, as it concerns the bank’s announced prime lending rate. The bank’s statement did not give a specific reason for raising that rate.
The Bank of Canada set the increase at 25 basis points, raising its overnight rate target from 2.25%, where it had held the rate unchanged on September 2, to 2.5%. It also raised the bank rate to 2.75% and the deposit rate to 2.45%. That ended a period of rate holds following an increase in October, after the target had remained at 2.25% in previous decisions since January, according to the bank’s data. National Bank of Canada’s prime rate stood at 4.70% from October 29, a rate distinct from the Bank of Canada’s policy facility rates. National Bank said its assets totaled 635 billion Canadian dollars on July 31, 2026, and that it is one of Canada’s six systemically important banks.
The Bank of Canada’s decision was based on an economic picture combining stronger-than-expected growth with energy-related inflationary pressures. Gross domestic product grew 3.3% in the second quarter of 2026, and recent indicators pointed to growth of about 2% in the third quarter, stronger than forecast in the July report. The bank attributed the economy’s resilience to strong consumer spending and a recovery in business investment. It said investment rebounded alongside activity in the oil and gas sector and spending on machinery and equipment. But the bank estimated that growth would slow in the fourth quarter amid new U.S. tariffs, greater uncertainty over trade policy and tighter financial conditions.
On prices, a Reuters report ahead of the meeting said annual inflation was 3.1% in September, driven almost entirely by energy, while measures of core inflation fell below 2%. The Bank of Canada expects inflation to remain near 3% through much of 2027 before easing to near 2% by mid-2028. The bank said the rate increase is intended to contain the possibility that higher energy costs will spread to prices for other goods and services. It said further increases could become necessary, while it proceeds cautiously given the divergent paths of growth and inflation. In its projections, it forecast economic growth of 1% in 2026 and 2% in each of 2027 and 2028.
Signs of a near-term slowdown came despite improved business sentiment in the third quarter, according to the Business Outlook Survey published by the Bank of Canada on October 19. But companies’ responses after the collapse of trade talks and the announcement of retaliatory tariffs showed a deterioration in expectations, the bank said. The Monetary Policy Report said expected fourth-quarter growth would be affected by new U.S. tariffs, trade uncertainty and tighter financial conditions. In markets, the S&P/TSX Composite Index fell 0.08% to 836,142.86 points at 10:19 a.m. Eastern time on the decision day, pressured by mining shares. Canadian bond yields also rose and the Canadian dollar edged higher against its U.S. counterpart, while TD Securities analysts said the meeting’s mixed tone delayed the initial reaction.
Attention now turns to the Bank of Canada’s next overnight rate announcement on December 9, 2026, with its next Monetary Policy Report due on January 27, 2027. TD Securities analysts said the threshold for another increase in December had fallen, citing the bank’s tendency to make consecutive increases after a long pause. A strategist at Raymond James said one more increase in December or early 2027 could ease pressures. These projections remain analysts’ views, while the bank announced its next dates in its meeting schedule. National Bank of Canada’s new rate is scheduled to take effect on October 29, ahead of the Bank of Canada’s next meeting.