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Q1: What did you learn about your topic that surprised you the most

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Q1: What did you learn about your topic that surprised you the most

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We hear a lot about the terms Bank of Canada, inflation rate, monetary policy, and interest rate recently, especially when Bank of Canada consecutively increase benchmark rate for 6 times this year. In fact, I did similar research for my essay 15 years ago, but it is about the Central Bank of China and Monetary policy. What surprise me most is transparency of Bank of Canada and its monetary policy. Monetary policy report releases quarterly and it is a update of the effect of monetary policy. This information is difficult to access when I searched for my essay in China. Transparency is very important for monetary policy, the more information people access, the more effective the policy will be as the it will change people’s expectation so that enhance the power of the monetary policy and less the negative aspect to the economy.

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Q2: Provide a real-life example of how this topic is relevant or interestingfor you.

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Q2: Provide a real-life example of how this topic is relevant or interestingfor you.

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This topic is very relevant to me as I have mortgage on my house. My husband and I are kind of concern about the trigger rate, which will significantly increase our mortgage monthly payment and thus have more burden on the cash flow.

Unfortunately, the inflation rate still on a peak, interest rate is expected to continue to rise until end of 2023. For those who have loan on a variable rate should be more aware of the importance of Monetary Policy Report and be ready for more interest rate increase.

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Image #1: Bank of Canada Keeps Key Targets on Hold

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Image #1: Bank of Canada Keeps Key Targets on Hold

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This image is about the importance of Bank of Canada in the role of stabilize Canada’s economy and finance. Bank of Canada utilizes fiscal and monetary tools to adjust Canada’s economy. Keeping inflation rate and unemployment rate within an acceptable level is the two main objectives of Bank of Canada.

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Summary
This is a home page of Bank of Canada. It includs the most important data of current economy, such as most update inflation rate, policy rate.

The reason I choose this website is Bank of Canada the most accurate source of economic data. In order to know the performance of Canada's economy, we have to keep a close eye on key index or numbers, this website provides us the most updated data to measure our economy.

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The Bank of Canada today published a report summarizing the feedback it has received to date about a potential digital Canadian dollar.

Executive Director of Supervision Ron Morrow discusses the creation and coming into force of a new supervision regime to oversee retail payments.

The Bank of Canada has announced the five finalist teams in the 2023-24 edition of The Governor's Challenge, a competition where university students simulate the role of advisor to the Bank's Governing Council.

Governor Tiff Macklem outlines how high inflation is hurting Canadians and how monetary policy is working to bring it down. He also explains why the Bank of Canada must stay the course in its inflation fight.

Senior Deputy Governor Carolyn Rogers talks about why interest rates could settle at a higher level than Canadians are used to and why preparing early for that possible outcome is important.

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The Bank of Canada is the nation's central bank. We are not a commercial bank and do not offer banking services to the public. Rather, we have responsibilities for Canada's monetary policy, bank notes, financial system, and funds management. Our principal role, as defined in the Bank of Canada Act, is "to promote the economic and financial welfare of Canada."

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Websit #2: Bank of Canada-Monetary Policy

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Websit #2: Bank of Canada-Monetary Policy

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This website is under the Bank of Canada, who is in charge of the monetary policy decision and implementation. This website is all you need to know about Canada’s monetary policy, such as policy objective, target over rate, inflation control target and so much more.

The reason I choose the website is because this is the most reliable, accurate and timely resource of Canada’s monetary policy. There are many websites, articles, discussion post, news about our monetary policy, how it work and what the consequence it may be. However, these resources may not be 100% accurate as people’s perspectives may have been built in their interpretation of policy, and the interpretation is limit to different individuals. Our decisions have to make on the most accurate information, so that’s the importance of this website.

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Learn about the objective of Canada's monetary policy and the main instruments used to implement it: the inflation-control target and the flexible exchange rate. See also how monetary policy works, how decisions are made and read related backgrounders.

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This website is about 3 tools of monetary policy, which are Open Market Operations, Reserve Requirement and Discount Rate. Monetary policy is a combination of different tools, together working toward the same goals or targets.

The reason I choose this web site because it will bring you into an insight of 3 tools and help you understand the how every tool is working towards the target, how they affect the money supply and demand in the market, and eventually affect the inflation target. Even though these 3 tools are working toward the same targets but some are more efficient and some are less. Interest rate is considered the most efficient tool among these 3. So we are seeing the news of increasing bench mark rate increase during year 2022 as a major way to control inflation rate.

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WRITTEN BY PAUL BOYCE | Updated 30 October 2020

In the developed world, central banks decide monetary policy. The US has the Federal Reserve, the UK has the Bank of England, and the EU has the European Central Bank. In general, these are independent institutions, free from political interference. However, that does not necessarily mean political factors do not influence their decision making.

Such decisions can be made through three main channels: open market operations, the discount rate, and the reserve requirement. With that said, there are many other tools that they have at their disposal. But the purpose here is to look at the main tools and those that are most commonly used.

1. Monetary policy refers to the control and supply of money in the economy.

2. Monetary policy is dictated by central banks.

3. The main three tools of monetary policy are - open market operations, reserve requirement, and the discount rate.

The first tool of monetary policy is Open Market Operations, which refer to the buying and selling of financial instruments by central banks. For instance, the Federal Reserve purchases:

"Holdings of Treasury, agency, and mortgage-backed securities; discount window lending; lending to other institutions; assets of limited liability companies (LLCs) that have been consolidated onto the Federal Reserve's balance sheet, and foreign currency holdings associated with reciprocal currency arrangements with other central banks (foreign central bank liquidity swaps)."

These financial instruments are also known as securities. Central banks purchase these from private banks by creating money and adding it to the banks' central reserves. These reserve accounts are like our current accounts. The central bank buys securities from private banks and puts money in their reserve accounts.

If we compare this to real life, it's a bit like selling your old car and the customer transferring the money to your account. The main difference being that the customer essentially creates the money from thin air.

So, when central banks purchase securities from private banks, money goes into their reserve account. In turn, these securities are added to the central banks' asset sheet, whilst private banks now have the extra cash flow to use for other means.

When the central bank buys securities, we call this an expansionary monetary policy. This is because it is expanding the money supply. So, when it adds money into private banks' reserve accounts, it is creating money. In turn, they have more money to circulate throughout the economy. Meaning there is more money to lend and invest.

Open market operations have the potential to cause , so central banks must exercise extreme caution. They normally take place during periods of economic decline, with the aim of boosting the money supply and decreasing its value.

"Open market operations have the potential to cause inflation, so central banks must exercise extreme caution."

Ultimately, the central bank provides liquid funding to private banks. The aim is for them to lend to businesses to create jobs and invest in the economy.

What we saw in 2008 was an example of open market operations, but on a scale unseen before. Also known as Quantitative easing , the Federal Reserve increased its balance sheet from $800 billion to over $4 trillion by 2019. The aim was to reduce the impact of the financial crisis and preserve aggregate demand.

The second tool of monetary policy that a central bank has is the reserve requirement. This is a percentage each bank must keep when loaning out depositor's funds. For instance, the reserve requirement may be 10 percent. So, if a depositor puts $100 into the bank, they must keep back $10 and are then allowed to lend out the other $90.

The reserve requirement is a regulation employed by most central banks across the world, although to varying extents. In turn, commercial banks must keep the specified reserve requirement to hand. So, this could be stored as cold hard cash or in their central reserve accounts. The point is so that they have enough money to meet the immediate demands of their depositors.

Central banks use the reserve requirement to expand and contract the money supply indirectly. It does this by requiring banks to hold more money on hand instead of lending it out. So rather than the money circulating around the economy, it is doing nothing in the bank's vaults or account sheet.

"Reducing the ratio can increase the money supply, creating inflation, whilst increasing the ratio can decrease the money supply and cause a recession and deflation."

When the reserve ratio is low, the more money banks can lend out. However, when it is high, it means the banks must keep more aside. In turn, this means less money circulating through the economy. So restrictive reserve ratios can reduce the money supply, meaning there is less money to reflect the goods and services that are being produced. This has the potential to cause as there is less money in circulation.

The main purpose of controlling the reserve ratio is to allow central banks more control over the money supply. Reducing the ratio can increase the money supply, which in theory, should help boost aggregate demand in the economy. By contrast, increasing the ratio will reduce the money supply. Central banks may do so if inflation is getting out of hand. So, it is another way of controlling inflation.

The final tool of monetary policy is the discount rate , which refers to the rate of interest the central bank charges to private banks. So, if they are unable to find enough liquidity from other banks, they will have to borrow from the central bank as a lender of last resort. For instance, a private bank may be unable to meet its liabilities and may require a short-term loan to cover it.

The Federal Reserve offers the discount rate in three formats: primary credit, secondary credit, and seasonal credit - each with its own interest rate.

Primary credit is extended to the most secure of financial institutions and receive the best rates. Secondary credit is available for those institutions that do not quite meet the same standards and offer greater risk. And finally, seasonal credit is extended to relatively small depository institutions that have recurring intra-year fluctuations in funding needs, such as banks in agricultural or seasonal resort communities.

By increasing the discount rate, the central bank makes it more expensive for banks to do business. It costs them more if they need a short-term loan, so the higher the rate, the more risk-averse banks become. At the same time, when the central bank decreases the discount rate, it makes it cheaper to borrow money. Both actions influence the money supply. So, a higher discount rate decreases the money supply whilst a lower rate increases it.

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WRITTEN BY PAUL BOYCE | Updated 30 October 2020 In the developed world, central banks decide monetary policy. The US has the Federal Reserve, the UK has the Bank of England, and the EU has the European Central Bank. In general, these are independent institutions, free from political interference.

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Website #4: Canada - Monetary Policy Rate

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Website #4: Canada - Monetary Policy Rate

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This website is a professional analysis Canada’s economy where provide Canada’s most important indicators such as GDP, Labour, Trade, Price, Market, Government and much more.

The reason I choose this website is because, Moody is one of the most largest investment bank around the world, Moody’s website gives you very most professional deep analysis of current Canada’s economy and also gives you all the key indicator to help you understand the performance of the economy. More importantly, these key indicators and analysis can help you to predict the future economy performance so support your personal or business decisions. Learning economy helps us better understand the current situation but more helps us to review our current portfolio and make adjustment accordingly.

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Interbank overnight market

THE TARGET FOR THE OVERNIGHT RATE is the main tool used by the Bank of Canada to conduct monetary policy. It tells major financial institutions the average interest rate the Bank of Canada wants to see in the marketplace where they lend each other money for one day, or "overnight." When the Bank changes the Target for the Overnight Rate, this change usually affects other interest rates, including mortgage rates and prime rates charged by commercial banks.

Canada's major financial institutions routinely borrow and lend money among themselves overnight, in order to cover their transactions during the day. Through the Large Value Transfer System (LVTS), these institutions conduct large transactions with each other electronically. At the end of the day, the financial institutions need to settle with each other. One bank may have funds left over at the end of this process, while another bank may need money. The trading in funds that allows all the institutions to cover their transactions is called the overnight market. The interest rate charged on those loans is called the overnight rate.

The Bank of Canada operates a system to make sure trading in the overnight market stays within its "operating band." This band, which is one-half of a percentage point wide, always has the Target for the Overnight Rate at its center. For example, if the operating band is 4.25 to 4.75 per cent, the Target for the Overnight Rate would be 4.50 per cent. Since the institutions know that the Bank of Canada will always lend them money at the rate at the top of the band, and pay interest on deposits at the bottom, there is no reason for them to trade funds at rates outside the band.

The Bank can also intervene in the overnight market at the Target rate, if the market rate is moving away from the Target. The Target sets the trend. When the Bank changes the Target for the Overnight Rate, this sends a clear signal about the direction in which it wants short-term interest rates to go. These changes usually lead to moves in the prime rate at commercial banks, which serves as a benchmark for many of their loans. These changes can also indirectly affect mortgage rates, and the interest paid to consumers on bank accounts, GICs, and other savings.

When interest rates go down, people and businesses are encouraged to borrow and spend more, boosting the economy. But if the economy grows too fast, it can lead to inflation. The Bank may then raise interest rates to slow down borrowing and spending, putting a brake on inflation. In choosing a Target for the Overnight Rate, the Bank of Canada picks a level that it feels will keep future inflation low, stable and predictable. Keeping inflation low and stable helps provide a good climate for sustainable economic growth, investment and job creation.

The data for the 10-year rate refers to the par yield rates. "Long term (in most cases 10 year) government bonds are the instrument whose yield is used as the representative 'interest rate' for this area. Generally the yield is calculated at the pre-tax level and before deductions for brokerage costs and commissions and is derived from the relationship between the present market value of the bond and that at maturity, taking into account also interest payments paid through to maturity." (https://stats.oecd.org/index.aspx?queryid=86).

International comparability

When comparing Canada's official interest rates with those of other countries, the Target for the Overnight Rate is the best rate to use. It is directly comparable with the U.S. Federal Reserve's target for the federal funds rate, the Bank of England's two-week "repo rate," and the minimum bid rate for refinancing operations (the repo rate) at the European Central Bank.

CORRA

The Canadian overnight repo rate (CORRA) is the weighted average rate of overnight general (non-specific) collateral repo trades that occurred through designated inter-dealer brokers and the Canadian Derivatives Clearing Corporation's central counterparty system between 6:00 a.m. and 4:00 p.m. on the specified date as reported to the Bank of Canada. The list of contributors, as recognized by the Investment Industry Association of Canada (IIAC), includes Freedom International Brokerage Inc., Tullett Prebon (Canada) Ltd. and Shorcan Brokers Ltd. Although the data is believed to be reliable, the Bank of Canada does not guarantee its accuracy or completeness. As approved by the IIAC, in the event that less than $500 million in eligible overnight trades are reported, CORRA will be set at the Bank of Canada's target for the overnight rate.

Effective 15 June, 2020, the Bank of Canada has replaced Refinitiv as the administrator of CORRA. Concurrent with this change, the Bank of Canada adopted a new methodology for calculating CORRA. Historical data has not been revised, however, the data exhibits a break in methodology at 12 June 2020.

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Canada Monetary Policy Rate | Moody's Analytics

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THE TARGET FOR THE OVERNIGHT RATE is the main tool used by the Bank of Canada to conduct monetary policy. It tells major financial institutions the average interest rate the Bank of Canada wants to see in the marketplace where they lend each other money for one day, or "overnight."

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Video #1: A Canadian Central Bank: The History of the Bank of Canada

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Video #1: A Canadian Central Bank: The History of the Bank of Canada

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Summary

This video is about the history of Bank of Canada, how to continue to promote Canada’s finance and economy, and its role to be the agent of Canadian commercial banks.

Bank of Canada is the start of our topic. It is important to understand the responsibilities of Bank of Canada in Canada’s economy, and also the difference between central bank and commercial bank.

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A Canadian Central Bank: The History of the Bank of Canada

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Summary
This video is explaining what is monetary policy? What is objectives and instrument of monetary policy? And it how monetary policy control money supply and demand, in order to control inflation rate.

The reason I choose this video is to help my readers to know more about monetary policy. Monetary policy is not one policy, it is a combination of different tools, its purpose is to control money supply and demand in circulation and thus to realize the pre-set objective of inflation rate and unemployment rate.

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Video #3: Inflation & interest rates: How the Bank of Canada aims to reign in prices by raising rates

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Video #3: Inflation & interest rates: How the Bank of Canada aims to reign in prices by raising rates

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This video is about the relationship between inflation and interest rate.

The reason to post this video is to explain the purpose of
interest rate increasing by Bank of Canada. Interest rate is one of the major tools of Monetary Policy that has a significant impact to inflation and also help Bank of Canada to realize the aim of inflation.

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Inflation & interest rates: How the Bank of Canada aims to reign in prices by raising rates

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As Bank of Canada increases its benchmark rate for consecutive 6 times, Bank of Canada become one the most popular name is Canada 2022.

People may have questions like: What is the duty of Bank of Canada; what is monetary policy; what is the difference between commercial banks and Bank of Canada; why Bank of Canada increases interest rate consecutively in this year; what is the purpose by raising benchmark rate; After going through my Padlet Wall, you will have a better understanding about Bank of Canada and Monetary Policy.

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Q3: If you could pass on your knowledge to a family member or friend, whatdo you think is the most important thing to pass on?

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Q3: If you could pass on your knowledge to a family member or friend, whatdo you think is the most important thing to pass on?

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This most important I will pass on to my friend is be mindful on your cash flow during the inclining of interest rate. I know many friends have mortgage or some kind of lending from the bank in variable rate. Most of us do not expect that Bank of Canada has so strong determination of keeping inflation in an aimed level, as a result, the increase of load payment surprises many households and some of them become stressful of making payment. I would suggest my friend set up back up plan to access cash flow, fix interest rate to the affordable level and be cautious if they try to buy more assets through borrowing.

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Video #4:July 2022 Monetary Policy Report – In Brief

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Video #4:July 2022 Monetary Policy Report – In Brief

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This video is a brief about the most current concern of Canada’s economy- inflation and the impact of our real life.

The reason I choose this video because I want my reader to know that Bank of Canada releases Monetary Policy Report quarterly. People can also go to the website of Bank of Canada to check the full version of monetary Policy report. This report is mainly telling you about our current inflation level and the response to current monetary policy. The Monetary Policy Report also has the prediction of inflation so that Canadian can have a whole picture of our economy.

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July 2022 Monetary Policy Report – In Brief

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Image #2: Monetary Policy Transmission Mechanism

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Image #2: Monetary Policy Transmission Mechanism

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This image shows the process of monetary policy impact the inflation rate. In fact, as one of the powerful tool of monetary policy, overnight rate does not connect to inflation rate directly, the influence has to go through few vaibles, such as exchange rate, long term interest rate, demand of money and much more. This image explains transmission mechanism and how to influence the aimed target, inflation.