Historical article. This article describes 2021. It does not cover later Bank of Canada decisions. Figures are dated and sourced where they appear.

The Bank of Canada held its target for the overnight rate at 0.25% at all eight of its scheduled decisions in 2021. The rate had been lowered to 0.25% on March 27, 2020.1 The year is notable for that hold rather than any rate change. Bond purchases were reduced during the year, and the Bank's outlook for inflation and the economy changed by its last decision.

The policy rate in 2021

The policy rate is the Bank's target for the overnight rate. It sets the reference point for short-term borrowing costs across the financial system. In 2021 the target did not move. Each decision restated that the Bank was holding the rate at the effective lower bound.

The 2021 decisions

Decision datePolicy rateWhat the Bank did
January 200.25%Held. 2
March 100.25%Held. Bond purchases continued. 3
April 210.25%Held. Weekly bond purchases reduced to a target of $3 billion. 4
June 90.25%Held. 5
July 140.25%Held. 6
September 80.25%Held. 7
October 270.25%Held. Net bond purchases ended; the Bank moved to reinvesting maturing bonds. Its projection placed a return to the 2% inflation target sometime in the middle quarters of 2022. 8
December 80.25%Held. The Bank kept its guidance that it would stay at the lower bound until economic slack was absorbed. 9

The Bank's June 9, 2021 statement said housing market activity was expected to moderate but remain elevated.5 The policy rate stayed at 0.25% through that decision and every decision after it in 2021.

Policy rate and mortgage rates

The policy rate is not a mortgage rate. Fixed and variable mortgage rates are set by lenders and move for their own reasons, including bond yields and competition. This article does not quote mortgage rates for 2021 because none were checked against a dated primary source for this revision. For current rates, speak to a licensed broker or lender.

The June 1, 2021 qualifying rate change

OSFI's letter dated May 20, 2021 changed the minimum qualifying rate for uninsured mortgages, effective June 1, 2021. Under the new rule, the qualifying rate is the greater of the mortgage contract rate plus 2 percentage points or 5.25%.10 The letter describes the change as replacing the existing benchmark rate with a fixed floor.10

The qualifying rate is used to test whether a borrower could carry the mortgage at a higher rate. It does not set the rate the borrower pays. Whether a particular applicant qualifies depends on their file, and a licensed broker or lender can explain how the test applies to a specific case.

Home prices in 2021

The CREA Aggregate Composite MLS Home Price Index was up a record 26.6% year over year in December 2021, on a non-seasonally adjusted basis.11 That is a national figure. Local markets, including the Greater Toronto Area and other Ontario markets, moved by different amounts, and this article does not give regional figures.

Frequently asked questions

Did the Bank of Canada change its policy rate in 2021?
No. The Bank held its target for the overnight rate at 0.25% at each of its eight 2021 scheduled decisions. The rate had been set at 0.25% on March 27, 2020.
What changed for mortgage qualifying on June 1, 2021?
From June 1, 2021, the minimum qualifying rate for uninsured mortgages became the greater of the contract rate plus 2 percentage points or 5.25%, as set out in OSFI's letter of May 20, 2021.
How much did home prices rise in 2021?
The CREA Aggregate Composite MLS Home Price Index was up a record 26.6% year over year in December 2021, on a non-seasonally adjusted basis. This is a national figure.
What did the Bank say about 2022 at the time?
In its October 27, 2021 projection, the Bank said inflation would return to its 2% target sometime in the middle quarters of 2022, and it would keep the policy rate at the effective lower bound until then. This article describes 2021 only.
Disclaimer: This article is for general information about 2021 and does not constitute financial, legal, tax, insolvency or mortgage advice. Figures are as published by the sources listed and are dated where they appear. Mortgage products are subject to lender approval (OAC). Good Home Capital Inc. (FSRA Mortgage Brokerage Licence #12596) is licensed and regulated by the Financial Services Regulatory Authority of Ontario. Where a legal, tax or insolvency question matters to your situation, check with a licensed professional before you act.
Sources
  1. Bank of Canada. Policy interest rate decision, March 27, 2020 (lowered 50 basis points to 0.25%)
  2. Bank of Canada. Policy interest rate decision, January 20, 2021
  3. Bank of Canada. Policy interest rate decision, March 10, 2021
  4. Bank of Canada. Policy interest rate decision, April 21, 2021
  5. Bank of Canada. Policy interest rate decision, June 9, 2021
  6. Bank of Canada. Policy interest rate decision, July 14, 2021
  7. Bank of Canada. Policy interest rate decision, September 8, 2021
  8. Bank of Canada. Policy interest rate decision, October 27, 2021
  9. Bank of Canada. Policy interest rate decision, December 8, 2021
  10. Office of the Superintendent of Financial Institutions. Amendments to the minimum qualifying rate for uninsured mortgages, letter dated May 20, 2021
  11. Canadian Real Estate Association. News release, January 17, 2022 (MLS Home Price Index, December 2021)