The Bank of Canada has raised its trendsetting policy rate to try and cool inflation.
The key policy rate, also known as the target for the overnight rate, is the interest rate the Bank of Canada wants commercial banks to charge when lending each other money overnight so they settle balances at the end of each day.
Raising rates has the opposite effect by cooling spending when inflation rises above the Bank of Canada’s comfort zone of between one and three per cent.
Rates.ca and Ratehub.ca note that homeowners with variable rate mortgages are likely to see an increase in mortgage payments since the prime interest rate charged by banks generally moves with the central bank’s key rate.
Rebekah Young, Scotiabank’s director of fiscal and provincial economics, says a general rule-of-thumb is that an increase of 0.25 per cent in the Bank of Canada’s overnight rate typically dampens economic growth by about 0.1 percentage points.
The Bank of Canada building is seen in Ottawa, Wednesday, April 15, 2020.