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Then scroll down and start with module 1- Intro CPA followed by module 6 - Large Value Transfer System. If you are just interested in how the overnight lending rate functions go directly to module 6 and watch the video from 9:44 to 14:05.
So, how effective is the policy rate in controlling the money supply?
People are more willing to take on loans when the interest rates are low. Which means a greater supply of money circulating in economy and when the interest rates are high people are less likely to take on loans. There is an important distinction to be made here. The BoC increases or decreases its policy rate which affects all other rates, loans, mortgages etc., or in other words the availability of credit.
Changes in the target for the overnight rate influence other interest rates, such as those for consumer loans and mortgages. They can also affect the exchange rate of the Canadian dollar.
In November 2000, the Bank introduced a system of eight fixed dates each year on which it announces whether or not it will change the policy rate.
There can be a significant lag before interest rate changes influence spending and saving decisions, and thus have an impact on overall demand and supply, and hence, inflation. The time lag is variable, but research suggests that it can take six to eight quarters (one and a half to 2 years) for a change in the policy rate to have its full effect on inflation. This is why monetary policy decisions have to be made with a view to the future, mindful of the associated uncertai
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