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How do interest rates work in Canada?

Understanding interest rates begins at the Bank of Canada, which controls the policy interest rate, or the interest Canadian banks charge each other for overnight loans. Changes in the policy interest rate impact the way banks apply interest on credit they extend to a consumer, like a credit card or mortgage.

Why did Bank of Canada raise its benchmark interest rate?

Bank of Canada Governor Tiff Macklem raised the bank's benchmark interest rate by a full percentage point to 2.5 per cent — the largest one-time increase since 1998 — to combat high inflation.

What is the bank of Canada monetary policy?

At the heart of the Bank of Canada’s monetary policy is the target for the overnight rate. See what it is—and what it means for you. At the Bank of Canada, the primary tool we use to control inflation is our target for the overnight rate—also called our policy interest rate.

What happens if Bank of Canada raises the overnight rate?

When the Bank of Canada lowers or raises the overnight rate, it factors into the way commercial banks apply interest on credit they’ve extended (like, say, a credit card, mortgage or line of credit), and what they agree to pay as interest on their savings products (for instance, a high interest savings account).

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