Question

1. In The News: Bank of Canada increases overnight rate Canada increases overnight rate target to 14 per cent October 24, 2018- The Bank of Canada today increased its target for the to 1 34 per cent. The Bank Rate is correspondingly 2 per cent and y increased its target for the overnight rate 12 per cent is correspondingly 2 per cent and the deposit rate is 1 Questions: a) What sorts of developments would have prompted the bank of Canada tom announcement? b) What would be the Bank of Canada's intention in making this policy change c) How would this policy change affect the international value of the Canadian dollar 2. Visit the Bank of Canada's website (www.bankofcanada.ca) and check the Bank's most recent press release concerning policy announcements involving interest rates and the most recent Monetary Policy Report or Monetary Policy Report Update Questions: a) How has the Bank of Canada changed its target for the overnight rate recently? b) What were the reasons for its change or not change in the target?

want to know the answer for both the questions....thanksss ASAP

Answer 1

Answer 1:

a. Increasing overnight target rate in Canada is mainly brought about because of rising inflationary gap in Canada and also outflow of capital from the Canadian economy which has led to exchange rate instability in the economy. These factors prompted the Central bank to pursue contractionary monetary policy.

b. The main intention of Bank of Canada in making this policy change involves elimination of inflationary gap in the economy and increase in the rate of capital inflow in the economy. These changes will promote price and exchange rate stability in the economy.

c. With such a policy change, rate of return on capital investment will increase which will lead to net capital inflow in the economy and thus international value of Canadian dollar will increase in the economy.