Why do interest rates change?

Interest rates fluctuate all the time. The interest rate dictates how much it costs to borrow money. Like most services, this cost of borrowing will change based on the market. However, market forces also dictate whether or not interest rates will rise or fall. For instance, if analysts are uncertain about near or long-term economic forces, this can prompt lenders to be more careful about lending, which can increase interest rates. That said, various market forces can influence interest rates, such as economic growth, international trade and inflationary pressures.

Why does the Bank of Canada interest rate change?

Analysts and experts at the Bank of Canada (BoC) will monitor, assess and run predictive models to determine whether or not to influence Canada's monetary policy using the Bank's target rate (aka: overnight rate). The BoC uses the target rate to influence what lenders charge on variable-rate loans, such as variable-rate mortgages, lines of credit, and interest earned on savings accounts. When the BoC wants to stimulate the economy, they will lower the overnight rate, which prompts a drop in interest rates. If the BoC wants to help cool the economy, there is a hike in the target rate, prompting an increase in variable interest rates.

What is the Bank of Canada's role?

The Bank of Canada is the country's central bank. The BoC's main role is to monitor and promote the economic and financial welfare of the country, as defined by the Bank of Canada Act . The BoC has five main areas of responsibility: Monetary policy : The Bank will use monetary policy to influence the supply of money circulating in the economy with the aim of keeping inflation low and economic growth stable. Financial system : The BoC will take actions to promote safe, sound and efficient financial systems within Canada and internationally. In this way, the BoC will conduct transactions in financial markets supporting these objectives. Currency : The BoC designs, issues and distributes Canada's bank notes. Funds management : The Bank of Canada is the "fiscal agent" for the Government of Canada, managing its public debt programs and foreign exchange reserves. Retail payments supervision : The Bank will supervise payment service providers according to the Retail Payment Activities Act . Setting the official overnight rate is one of the Bank's key monetary policy tools. The Bank will announce potential rate changes during one of eight annual, pre-scheduled rate announcements. Based on current economic data and BoC analysis, the Bank will either cut, raise or hold the overnight interest rate.

How often does the Bank of Canada meet?

The Bank of Canada sets eight scheduled dates each year, where it announces the setting for the overnight rate target. The announcement is followed by a press release explaining the factors behind the decision.