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Overnight Rate Target (Canada)

Definition: The Overnight Rate Target is the interest rate the Bank of Canada is looking to see on short-term deposits on the overnight money market. It is the most important rate in Canada.

Description: The Overnight Rate Target is set in the middle of a 0.5-percentage-point band. The BoC uses open market operations to keep the interest rate within this band.

Influence: High interest rates lead to a decrease in lending and trigger an increase in consumer savings, causing a slowdown in economic growth. A rise in the Overnight Rate Target usually leads to an increase in capital flowing into Canada and provides a boost for the Canadian dollar in the medium term. However, if the increase in rates is not accompanied by rapid economic growth, this may lead to economic stagnation and have a negative impact on the Canadian dollar in the long run.

Market Impact: High

Released: Eight times per year (dates determined by the Bank of Canada)

Source: The Bank of Canada


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