What is A Central Bank?
Central bank is a national bank that provides financial and banking services for its country’s government and commercial banking system.
What is the role and function of Central Bank?
- To set official bank rates used to manage inflation and exchange rates
- To issue a country’s currency
- To set targets and monitor economic data while they implement special tools.
One of the special tools that is used by the central bank is Interest/bank rates adjustments. When the Central Bank sees a need to hike or cut their rates, they simply do so.
Why do Central Banks hike the Interest Rates?
When the economy is growing at a rate that may lead to hyperinflation (monetary inflation occurring at a very high rate)
Why do Central Banks cut the Interest Rates?
The Central bank may cut the Interest Rates to encourage people to borrow more money at a lower rate, be it for new houses or businesses. The aim is to also make saving money less attractive as the returns are lower when the rates are cut.
About Bank Of Canada
Bank of Canada’s Interest Rates is released 8 times per year. On the 22nd of January they’ll hold their first meeting of 2020 to decide on their Interest Rates which is currently 1.75%. Below is the Bank of Canada’s 2020 dates.