Overnight Rate
Quick Definition
The interest rate at which major banks lend each other money overnight.
Full Explanation
The overnight rate (also called the policy interest rate or key interest rate) is the rate at which major Canadian banks lend money to each other for one-day periods. The Bank of Canada sets a target for this rate and announces changes 8 times per year. The overnight rate is the primary tool of monetary policy — raising it slows borrowing and spending to cool inflation; lowering it stimulates borrowing and economic activity. The prime rate, which directly affects consumer and business borrowing, is typically the overnight rate plus 2.20%.
Related Terms
Bank of Canada
Canada's central bank, responsible for monetary policy and setting the overnight rate.
Prime Rate
The base lending rate banks use, tied to the Bank of Canada overnight rate.
Inflation
The rate at which the general price level of goods and services rises over time.
Variable Interest Rate
An interest rate that fluctuates based on the prime rate.
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