Canada Interest Rates

The history of Canada interest rates is fairly new. There was no organized bond market in Canada till the beginning of the twentieth century. Foreign capital played a key role in developing the country. Most of this capital came from the UK. Canada was later supported by the US. However, with the US entering World War I in 1917, Canada was forced to rely on its own finances for the first time.[br]

 

It was only in 1935 that the Bank of Canada was founded. Since then, the nation’s central bank has made several changes to the way it sets its benchmark interest rate. Here is a brief history of the key interest rate set by the Bank of Canada since its inception.

 

History of Canada Interest Rates

The original benchmark interest rate set by the Bank of Canada was the Bank Rate. This is the overnight interest rate, or the interest rate that the central bank charges for one-day loans to financial institutions.

• From March 1935 to November 1956, the Bank set the key rate directly and held it as fixed.

• In November 1956, the interest rate became a floating rate. The value depended on the three-month treasury bills. The average yield of the three-month treasury bills was determined and the interest rate was set 25 basis points above this.

• In June 1962, the bank rate became fixed again.

• From March 1980 to February 1996, the floating rate regime returned, with the same formula for calculating the rate.

• Since February 22, 1996, the bank rate is being set by the central bank.

• In December 2000, the Bank began setting the interest rate on eight fixed dates through the year.[br]

 

Canada Interest Rates and Recession

The 2008 global slowdown did not spare Canada. In January, the Bank of Canada cut interest rates to 1%, the lowest ever in the history of the central bank. After subsequent rate cuts, the key interest rate was set at 0.25% in late 2009 and was expected to remain at these historic low levels through June 2010. The low interest rate was intended to keep inflation in check.