Bank Rate: interest rate charged by Bank of Canada on loans it makes to chartered banks. The bank rate influences the rates of interest that banks charge their customers.
Chartered Bank: financial institutions that make loans and accept deposits. Chartered banks are established by government charter and are regulated by Parliament (e.g. Bank of Montreal) Prime Rate: interest that banks charge on their least risky loans is called their prime rate; this varies based on the bank rate set by the Bank of Canada. Open Market Operations: buying and selling of federal government bonds by the Bank of Canada to control the money supply |
Article Excerpts:
"Finance Minister Jim Flaherty says Canada will face global pressure to raise interest rates in 2014, as the United States begins to step back from its policy of extraordinary economic stimulus through intervention in bond markets. Mr. Flaherty stopped short, however, of saying what he thinks Mr. Poloz should do, with the minister’s spokeswoman saying Sunday that’s the “domain of the Bank of Canada.” At the same time, Bank of Canada Governor Stephen Poloz has signalled rates in this country aren’t likely to change for some time, as the bank juggles the risk of excessive borrowing by Canadians against that of sluggish inflation. With soaring personal debt levels and a heated housing market, any rise in interest rates could deliver a sharp jab to the Canadian economy. Last month in Montreal, Mr. Poloz stuck with the status quo of an official policy rate of 1 per cent, saying rates will “stay where they are for quite some time.” However, a November OECD report said Bank of Canada interest-rate hikes “may begin by late 2014 to avoid a buildup of inflationary pressures.” The OECD projections assumed the rate would be hiked in late 2014 and raised to 2.25 per cent – more than double its current rate – by the end of 2015. The IMF said in October it expected Canada to consider raising rates, or a “gradual tightening” of monetary policy, in late 2014. But the IMF also said in a report a month later that the Bank of Canada “can afford to wait before starting to raise policy rates towards more normal levels,” but that policy makers must “remain vigilant against the potential risks” of keeping rates low, such as pension funds’ “increased reliance on non-traditional investment strategies.” Monetary policy, such as interest rates and the dollar, are the Bank of Canada’s turf, not that of Mr. Flaherty, so it’s uncommon for him to comment on the subjects. Through his spokeswoman on Sunday, he declined to comment further. NDP Finance Critic Peggy Nash said it’s “disturbing” that Mr. Flaherty is wading into a subject area that’s the responsibility of Mr. Poloz. “He doesn’t want to leave any question about the independence of the Governor of the Bank of Canada, but we have a situation under the Conservative government that has allowed record household debt … and the bank is really caught between a rock and a hard place, because these high debt levels create pressure for higher interest rates, but inflation is very low. So they’ve created a climate that’s very difficult for the bank to act,” Ms. Nash said." |