The policy interest rate is a rate established by central banks. Since 2000, the Bank of Canada has been setting the policy rate eight times a year, on specific dates. It posts this rate on its website.

The Bank of Canada sets the policy rate to influence different aspects of the Canadian economy, such as the exchange rate, consumer prices, bank interest rates, etc.

The policy rate influences the economy as a whole, as it represents the banks’ minimum refinancing rate with the Central Bank. So if the policy rate is low, banks can lend to their customers at a lower rate. On the other hand, if the policy rate is high, then the banks will have no choice but to charge their customers more when they borrow money.

Basically, an increase in the policy rate tends to slow inflation, make the currency stronger and decrease the number of loans made. Conversely, a decline may have the objective of stimulating business. Each country has its own central bank and its own policy rate, which can vary greatly from country to country.

Inflation definition

Inflation is a word you often hear economists brandish as a threat. It should not be too high or too low… but what is it, exactly? Inflation is the average rate at which the price of goods (food, household goods) and services (cellphone plans, hair cuts) increases year over year. Read more

Bank of Canada definition

The Bank of Canada is unlike other banks. As Canada’s central bank, it is literally the only one able to print money. Read more

Canadian Mortgage and Housing Corporation definition

The Canadian Mortgage and Housing Corporation (CMHC) is a Crown corporation that helps Canadian buy houses even if they don’t have much savings. Read more