Canadian Interest Rate Statement

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Felix Homogratus

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Canadian interest rate statement decision comes out once every 45 days.

When the economy in Canada is doing well, the flow of money becomes fast, and prices for goods and services start rising. This is called inflation. In order to keep inflation in check, Canadian government raises interest rates, which means for every dollar that the banks borrow from the government, they have to pay more.

The higher the government interest rate, the higher are the bank rates, so it becomes more expensive for people to borrow money for houses, cars, business equipment, et cetera. That cools down the economy and reduces inflation. As soon as the economy is slow, the government tries again to bring it back to normal, so it starts cutting interest rates. This means that people can borrow money from banks cheaper now, and the monthly payments on houses, cars, business equipment, et cetera, become smaller.

When Canada increases interest rates, the demand for the Canadian Dollars increases, because people from all over the world start investing into the country’s Certificates of Deposit (CDs). Based on this, traders speculate that the price of USD/CAD will go down.

Whenever there is an unexpected hike of interest rates, it is usually good for the Canadian Dollar, so USD/CAD tends to go down. Whenever there is an unexpected cut or hold of interest rates, it is usually bad for the Canadian Dollar, so USD/CAD tends to go up.

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