The Target for the Overnight Rate
The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate.
The overnight rate is the interest rate at which major financial institutions borrow and lend one-day (or "overnight") funds among themselves; the Bank sets a target level for that rate. This target for the overnight rate is often referred to as the Bank's key interest rate or key policy rate.
Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.
In November 2000, the Bank introduced a system of eight fixed dates each year on which it announces whether or not it will change the key policy rate.
"Blackout" Guidelines for Communications around Fixed Announcement Dates
Eight times a year, the Bank announces its decision on the setting of its key policy interest rate (the overnight rate target). Members of the Bank's Governing Council observe a communications "blackout" around the announcement of the interest rate decision. This "blackout" (or "no-comment") period is intended to help mitigate unnecessary speculation about monetary policy actions. During the blackout, Governing Council members refrain from giving speeches and from speaking to the news media or other outside parties about the economic outlook and the direction of monetary policy, or about anything else that could be considered relevant to the economic outlook and their interest rate decision. Other senior representatives of the Bank are also expected to adhere to the blackout guidelines.
The key policy rate decision is published on a Wednesday at 10:00 Eastern Time.
- In January, April, July and October, when the Monetary Policy Report is published concurrently with the key policy interest rate decision, the blackout starts on the day of the major staff briefing,1 which typically occurs on the Tuesday of the preceding week and ends the following Wednesday at 11:15 Eastern Time, when the press conference associated with the release of the Report begins.
- When the policy rate decision is not published in conjunction with a Monetary Policy Report, the blackout starts on Wednesday the week before the decision. In these cases, the blackout extends to the end of the day on which the decision is announced.
1During this briefing, the Governing Council receives the Staff projection, including information gathered by the Bank’s regional offices, information on money and credit conditions, and the perspective of financial markets. See T. Macklem, “Information and Analysis for Monetary Policy: Coming to a Decision,” Bank of Canada Review (Summer 2002): 11-18 and J. Murray, “Monetary Policy Decision Making at the Bank of Canada” (remarks to the Mortgage Brokers Association of B.C., Vancouver, British Columbia, 7 May 2012.
Browse Bank of Canada articles, research papers and publications related to monetary policy.
Browse Bank of Canada articles, research papers and publications related to exchange rates.
Schedule for 2014
|3 September||Interest rate announcement|
|22 October||Interest rate announcement and Monetary Policy Report|
|3 December||Interest rate announcement|
Schedule for 2015
|21 January||Interest rate announcement and Monetary Policy Report|
|4 March||Interest rate announcement|
|15 April||Interest rate announcement and Monetary Policy Report|
|27 May||Interest rate announcement|
|15 July||Interest rate announcement and Monetary Policy Report|
|9 September||Interest rate announcement|
|21 October||Interest rate announcement and Monetary Policy Report|
|2 December||Interest rate announcement|
Target for the Overnight Rate, Recent Data
|Date||Target (%)||Change (%)|
|3 September 2014||1.00||---|
|16 July 2014||1.00||---|
|4 June 2014||1.00||---|
|16 April 2014||1.00||---|
|5 March 2014||1.00||---|
|22 January 2014||1.00||---|
|4 December 2013||1.00||---|
|23 October 2013||1.00||---|
|4 September 2013||1.00||---|
|17 July 2013||1.00||---|
|29 May 2013||1.00||---|
A History of the Key Interest Rate
Over the years, the Bank of Canada has adjusted the way it sets its key interest rate. Following is a brief history of the key rate from the Bank's founding in 1935 until the present.
- March 1935 to November 1956
The original key interest rate was the Bank Rate. This is the minimum rate of interest that the Bank of Canada charges on one-day loans to financial institutions. Between March 1935 and November 1956, the Bank Rate was fixed, set directly by the Bank.
- November 1956 to June 1962
The Bank Rate became a floating rate, set at 25 basis points above the average yield on 3-month treasury bills at the federal government's weekly auction.
- June 1962 to March 1980
The Bank Rate was again fixed, set directly by the Bank.
- March 1980 to February 1996
The Bank Rate was returned to a floating rate, set at 25 basis points above the average yield on 3-month treasury bills at the federal government's weekly auction.
- 22 February 1996 to Present
Since 1996, the Bank Rate has been set by the Bank at the top of its operating band for the overnight rate (see next column.) This provides a clearer indicator of monetary policy intentions, because the Bank's influence on the overnight rate is more direct than on 3-month treasury bill rates.
- December 2000
The Bank began setting the level of the Bank Rate—and with it, the target for the overnight rate—on eight fixed dates per year.
From the Bank Rate to the "Target for the Overnight Rate"
- June 1994
The Bank began shifting emphasis from the Bank Rate to the target for the overnight rate as its key monetary policy instrument.
This shift followed the Bank's introduction of a 50-basis-point "operating band" for the overnight rate, which is the rate at which major participants in the money market borrow and lend one-day (or overnight) funds among themselves.
At that time, the Bank used daily adjustments in the level of settlement balances to set a "target level" for the overnight rate within the operating band. Specifically, the Bank would intervene with PRA and SPRA when the overnight rate hit the top or bottom of the operating band.
- February 1999
With the advent of the Large Value Transfer System (LVTS), the target for the overnight rate was defined as the midpoint of the band, or 25 basis points below the Bank Rate.
The shift in emphasis toward the target for the overnight rate was clearly communicated to the markets with the launch of the LVTS.
- May 2001
The Bank began emphasizing the target as its key interest rate in its communications with the public.
Because the target affects the interest rates that financial institutions charge each other from day to day, it usually affects other interest rates, such as mortgages and consumer loans.
The target for the overnight rate is also the most appropriate policy rate for international comparisons; for example, with the target for the federal funds rate in the United States and with the two-week repo rate in the United Kingdom.
Implementation of Fixed Announcement Dates
In November 2000, the Bank of Canada introduced a new system of eight “fixed” or pre-specified dates each year for announcing any changes to the official interest rate it uses to implement monetary policy. This paper describes the basic features of the proposed approach, elaborates its key advantages and identifies issues for consultation.
On 19 September 2000, the Bank of Canada published details of its plan to adopt a new system of eight “fixed” or pre-specified dates each year for announcing any changes to the official interest rate that it uses to implement monetary policy. Before finalizing and implementing the specific calendar of fixed dates, including the day of the week and time of day for announcements, the Bank invited interested Canadians to provide their views on the new fixed-date system.
Read a table of Monetary Policy Indicators that includes the operating band, settlement balances and special operations.