Target Rates Defined

Monetary policy for Canada and most of the world's economies are found in the target for the overnight rate. That establishes borrow and lend rates, bid and ask, buy and sell. Canada operates monetary policy based on an operating band. The band is one half of a percentage point wide and the overnight is the target. If the operating band is 2.25 to 2.75 percent, the overnight target −2.50 percent. The top band is the top bank rate and establishes interest for one day. The bottom band is the deposit rate and the rate banks pay on surplus funds.

The repo rate for Canada is important because it establishes the overnight rate. The OMMFR is a mystery rate and will always remain that way. The markets then decide if the overnight ...

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