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When the Economy is expanfing to the point of inflation, The Bank of Canada can increase interest rates, making it more expensice for consuners to borrow. This tends to reduce overall spending and slows growth to a more manageable rate. The opposite holds true when the economy is weakening, in this case the Bank of Canasa will reduce rates in an attempt to encourage and boost consumer spending.

 

The primary mechanism the Bank of Canada has to manage interest rates is through the Overnight Lending Rate. This is the interest rate the retail banks earn on the funds they hold on overnight deposits with the Bank of Canada


courtesy of Trilogy Mortgage

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