Bank of Canada

The Bank of Canada decided today at their September meeting to keep rates as is, at 0.5%.

What is this interest rate, what’s it about, what does it mean?

This rate actually only applies directly to banks. The Bank of Canada sets this rate as the amount of interest banks may charge when they loan each other money. The banks then add a couple percentage points to that and call it the consumer rate = a 2.5% lending rate. This extra 2% is added because there are regulations in place for our big banks that stipulate how much capital, or money reserves, a bank must have at all times based on how much it is loaning out. This ensures that the bank can cover any defaulting loans and also means that our Canadian banking system is pretty air tight, particularly in comparison to that of our southern neighbour – though their regulators have asked the banks to carry more cash after that 2008 fiasco, likely not enough though to ensure protection…)

Why does it change though? Keep Reading