A complete guide to the Bank of Canada and interest rates

What is the Bank of Canada?

The Bank of Canada is Canada’s central bank, which was created to promote the economic and financial welfare of the country. The BOC is responsible for preserving the value of the Canadian dollar and keeping inflation low through monetary policies, printing money and setting interest rates.

The Canadian Ministry of Finance controls the direction of the bank, and all profits made from the bank’s activities go to the Receiver General of Canada.

The BOC is the equivalent to the Bank of England or Federal Reserve.

What is the Central Bank of Canada’s interest rate?

The Bank of Canada’s interest rate is the cost at which major financial institutions borrow and lend to each other overnight. The BOC sets the target level for the rate in order to influence inflation.

Changes in the Bank’s policy interest rate will influence other interest rates handed down to consumers, such as those on loans and mortgages, as well as the interest earned on savings. The rate decisions can also impact the value of the Canadian dollar.

Overtime, a low interest rate can make the price of imported goods and services more expensive in Canada, while making Canadian exports more appealing. This usually leads to faster inflation. In contrast, a higher interest rate leads to cheaper imports and more expensive exports.

The current interest rate in Canada is 0.25%. The Bank of Canada has kept the country’s interest rate at 0.25 since March 27 2020 at the onset of the Covid-19 pandemic.

The BOC announced in the April 2021 meeting that while the outlook for the economy is improving thanks to the vaccine rollout, Canada is still experiencing rising infections and lockdown restrictions. As such, the bank maintained the lower bound of 0.25%.

In January 2021, the Bank of Canada has also employed a quantitative easing program of purchasing 4 billion Canadian dollars per week. In the April 2021 meeting, the quantity of Canadian bonds being purchased was lowered to 3 billion per week. This reflects the bank’s hopes for economic recovery and optimism around GDP growth going forward.

The policy will likely stay in place until the 2% inflation target is achieved – which forecasts suggest won’t happen until 2023 – but could be tapered off as growth picks back up.

What is the BOC meeting?

The BOC meeting is when the Governing Council members come together to form a consensus of what target they’ll set for interest rates. The Governing Council consists of the Bank’s Governor, Senior Deputy Governor and four Deputy Governors. 

Bank of Canada interest rate decision dates 2022

The Bank of Canada’s interest rate is set eight times per year. It also releases its Monetary Policy Report, Business Outlook Survey and Survey of Consumer Expectations quarterly. The Bank of Canada’s 2022 calendar is as follows:

The target for the overnight rate will take effect on the business day following each rate announcement as of 2021. Previously, it came into effect immediately.

How do Bank of Canada interest rates impact financial markets?

The Bank of Canada interest rate is one of the primary factors that impacts the price of the Canadian dollar. Typically, a higher rate is considered bullish for the CAD, while lower rates are considered bearish.

The most watched market around the BOC announcement is the USD/CAD, which usually sees immediate knock-on effects. However, the prices of Canadian stocks – especially bank stocks – will also be susceptible to volatility if the rate is unexpectedly high or low.

When interest rates go up, typically the demand for goods and services declines, which can hit company revenues over the long term. This can cause stock prices to drop. Conversely, when rates fall, company revenues can be expected to rise and investors might increase their position sizes – boosting share prices.

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Who is the Bank of Canada governor?

The Bank of Canada’s current Governor is Tiff Macklem. The BOC Governor is responsible for ensuring the bank meets its responsibilities of monetary policy, currency supply and fund management.

Each BOC Governor serves a seven-year term, and is elected by the board of directors, who are appointed by Canada’s Minister of Finance.