Bank of Canada’s Key Interest Rate

The bank of Canada announced it’s key interest rate today (04 December, 2012), explains Sandra Woodbridge, VeriBIZ business advisor, and this rate will affect the interest paid on any floating money that is borrowed from a bank and in turn affect the bottom line of your business.

The Bank of Canada today announced that it is maintaining its target for the Overnight Borrowing Rate at 1.0 per cent. The overnight borrowing rate is the interest rate the Bank of Canada (Canada’s central bank) charges the chartered banks (e.g. Toronto Dominion, CIBC, Bank of Nova Scotia, Bank of Montreal and The Royal Bank of Canada), as well as other financial institutions, to borrow money. This overnight borrowing rate is intended by the Bank of Canada to influence Canada’s monetary policy.

This means that the major banks and financial institutions in Canada will most likely hold their Bank Prime Rates at 3% as they tend to follow suit as per the Bank of Canada announcements.

The Bank of Canada makes these key interest rate decisions eight times per year. The Prime Rate has remained unchanged since September 8, 2010. We look for clues that come along with interest rate announcements such as the much-watched forward-looking language the Bank reiterated today: “Over time, some modest withdrawal of monetary policy stimulus will likely be required”, and that the timing on such a move will be “weighed carefully” against global and domestic developments.

Analysts at TD Economics continue to expect the Bank of Canada to be the first among its peers of global central banks to hike rates, likely in the second half of 2013, but interest rate increases will be modest and occur in gradual steps.

What does this mean to our Veritas clients (not to mention my mortgage!)? For every 25 basis points (0.25%) increase in the Prime Rate, an additional $250 in interest costs will be paid per $100,000 borrowed each year.

The next Bank of Canada interest rate announcement is scheduled for January 23, 2013.