Overnight Interest Rate
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 January 20, 2021, the Bank of Canada maintained its overnight interest rate at 0.25 per cent.
- The rate was reduced from 1.75 per cent to 0.25 per cent in March 2020 in response to the onset of the COVID-19 pandemic
- The Bank of Canada projects that its overnight interest rate will likely remain at current level until 2023.
On January 20, 2021, the low interest rate environment in the Canadian economy continued when the Bank of Canada maintained its overnight interest rate at 0.25 per cent.
The rate was reduced sharply in March 2020 when economic prospects faded with the spread of the COVID-19 virus. The rate was adjusted from 1.75 per cent down to 0.25 per cent during the month of March 2020 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.
At 0.25 per cent, the overnight interest rate was reduced to the same level that it was in the Great Recession of 2008-2009.
The lower interest rate was necessary to encourage spending and support the economy which faced weaker growth prospects due to the onset of the COVID-19 pandemic.
Currently, growth prospects have improved, but the period of recovery is expected to be long given the depth of the decline in 2020, and the resulting growth required to recover to pre-pandemic level.
The Bank of Canada expects the inflation rate in the Canadian economy to remain relatively low, and as such its overnight interest rate is expected to remain at its current level until 2023.