In response to the recent sharp dip in oil prices and the resulting negative impact on growth and inflation, the Bank of Canada announced today that it is lowering its target for the overnight rate to 0.75 percent, a drop of one quarter of one percentage point. Read the full press release, here.
The Bank of Canada website describes the target for the overnight rate as follows:
The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate.
The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or “overnight”) funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank’s key interest rate or key policy rate.
Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.
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