The overnight interest rate is the rate at which banks lend or borrow funds from each other in the overnight market. It is the rate that influences other interest rates in the economy.
- On July 15, 2020, Bank of Canada announced that it was maintaining its overnight interest rate at 0.25 per cent.
- The rate was lowered in March 2020 in response to the onset of the COVID-19 pandemic.
- The low interest rate environment is expected to remain throughout the remainder of 2020 to achieve economic growth and price stability.
Overnight Interest Rate
The onset of the COVID-19 pandemic and associated disruption in economic activities influenced policymakers to adopt a lower interest rate strategy to support economic growth.
In March 2020, the Bank of Canada made significant downward adjustments to its overnight interest rate from 1.75 per cent to 0.25 per cent as follows;
- March 4, 2020: down to 1.25 per cent
- March 16, 2020: down to 0.75 per cent; and
- March 27, 2020: down to 0.25 per cent.
On July 15, 2020, the Bank of Canada announced that it was maintaining its overnight interest rate at the low rate of 0.25 per cent, the same level that it was reduced to after the Great Recession.
Inflation remains low and consumer demand has weakened because of the COVID-19 pandemic and have created an environment in which interest rates can be lowered to encourage increased spending, and help the economy to rebound from the COVID-19 induced downturn.
The inflation rate is expected to remain relatively low in the short-to-medium-term, and as a result, the overnight interest rate is expected to remain low over the same time horizon.