Mortgage Blog
What factors bank of Canada consider for interest rate?
July 9, 2024 | Posted by: Sarabjit Dhuna
Have you ever thought about who controls economy, Global events, innovation? There are many factors that are affecting economy, global events and innovations. However, if you talk about mortgage then interest rate would be the most important one.
In Canada, interest rate also known as policy rate, lending rate is set and announced by bank of Canada. Interest rate or overnight lending rate may affect mortgages and loans. This can impact on every resident of Canada.
What factors behind Bank of Canada’s rate decision?
Interest rate or overnight lending rate is the rate one commercial bank charge another commercial bank for the overnight loans. That is why it's called overnight lending rates.
Bank of Canada change policy rate during year in order to stabilize economy. For example, Bank of Canada can lower interest rate during recession time or increase interest rate during inflation to stabilize the economy.
Economic factors affecting interest rate
There are many factors that can affect the economy however, I mentioning 3 factors that can affect the economy
Inflation: -
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Bank of Canada try to maintains inflation rate 2%. Since, 2021 inflation rate increases dramatically. It reaches peak at 8.1% in June, 2022.
Jobs: -
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When there are little jobs are added in the market then it leads to low economic activity so, BOC decrease the interest rate to regain the economy. If there are lots of jobs are added in the market then it leads to high economic activity so, BOC increase the interest rate to calm down economy.
GDP: -
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GDP shows the overall health of the economy. Strong GDP indicates that market activity is too high therefore, it is better to increase the interest rate to keep it in balance. When GDP is low then it is better to decrease the interest rate so, it can calm the economy.
