In Canada, why does the interest rate in a country affect the interest rate on the loan you borrow?

Question

Just a thought.

Why is the bank loan interest rate affected by the government’s interest rate?

Banks don’t borrow from the Bank of Canada so they? It would make sense if the bank borrowed from the government and had to turn a profit.. sure.

But don’t banks just lend out the money they get from deposits?

If the government interest rate goes up, then so does the banks cost to borrow. Why?

In: Economics

Answer 1

Yes, they do actually borrow from the Bank of Canada. The Prime rate is the rate at which the BoC lends out money to financial institutions

> The Bank of Canada is the sole issuing authority of Canadian banknotes, provides banking services and money management for the government, and loans money to Canadian financial institutions.

https://en.wikipedia.org/wiki/Bank_of_Canada

So you have already answered your question: to turn a profit