The government does not set the prime rate. Prime rate is a tool for a bank to simplify adjusting the interest on their products, from mortgages to credit lines. Each bank set its own prime rate, and, technically, it can be set to any number, as long as it moves in lockstep with BofC overnight rate. In practice, however, all banks set their prime rates to BofC rate 2%. Do not ask me where these 2% came from, but they allow banks to offer loans at less then prime and still earn money on the difference with BofC overnight rate.