Statistics -> Bank of Canada Interest Rates and Inflation

Bank of Canada Interest Rates and Inflation

The Bank of Canada sets interest rates in order to try to keep inflation at 2%.  The rate of inflation is measured using the consumer price index produced by Statistics Canada.

If inflation is rising too fast, the Bank of Canada will increase the target overnight rate.  This will cause an increase in other interest rates charged to consumers, which should result in a reduction in borrowing and spending, which will slow down inflation.  If inflation is rising too slowly, the Bank of Canada will reduce the target overnight rate.  This will cause a reduction in other interest rates, which should result in an increase in borrowing and spending, stimulating the economy.  See Can the Canadian Government Print Money and Spend it?, which includes information on how the Bank of Canada works, and on the Canadian money supply.

The Bank of Canada rate that is quoted in the press is actually the target overnight rate.  The Bank of Canada takes deposits and lends money on a one-day basis from and to financial institutions.  The rate that the Bank of Canada pays to financial institutions for funds on deposit is 1/4% lower than the target overnight rate, and the rate it charges to financial institutions is 1/4% higher than the target overnight rate.  When the financial institutions borrow and lend funds on a one-day basis among themselves, this is done at the overnight rate.  The overnight rate can vary from the target overnight rate, but will stay within the rates paid and charged by the Bank of Canada, which is a range of 1/2%.

See the links on our Links page for the latest target overnight rates, or consumer price index information.

Revised: March 06, 2021