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.
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