Which government entity influences short-term interest rates in Canada?

The correct answer is the Bank of Canada. This institution plays a crucial role in influencing short-term interest rates through its monetary policy decisions. The Bank of Canada sets its target for the overnight rate, which is the primary tool used to influence interest rates across the economy.

When the Bank of Canada adjusts the overnight rate, it directly impacts the interest rates that commercial banks charge their customers and the rates they pay to depositors. By lowering the rate, the Bank of Canada makes borrowing cheaper, encouraging spending and investment, which can help stimulate the economy. Conversely, raising the rate makes borrowing more expensive, which can help keep inflation in check by slowing down spending.

The other options do not have the same authority or responsibility regarding monetary policy. For example, the Bank of Quebec and the Bank of Toronto do not exist as central banking authorities; rather, Canada has just one central bank, which is the Bank of Canada. The Canadian Mortgage Association is not involved in setting interest rates; its focus is more on facilitating access to mortgage credit rather than influencing monetary policy. Therefore, the Bank of Canada is uniquely positioned to influence short-term interest rates in Canada.