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Relation between inflation rates and interest rates
I haven't read the terms here but the question may not have a good answer.  That won't stop me from trying.   Call the real rate (interest rate - inflation) and you'll have what is called negative real rates. It's rare for the overnight real rate to be negative.  If you check the same sources for historical data you'll find it's usually higher.  This is because borrowing money is usually done to gain an economic benefit, ie. make a profit.  That is no longer a consideration when borrowing money short term and is IMO a serious problem.  This will cause poor investment decisions like you see in housing. Notice I said overnight rate.  That is the only rate set by the BoC and the longer rates are set by the market.  The central bank has some influence because a longer term is just a series of shorter terms but if you looked up the rate on long Canadian real return bonds, you'd see them with a real rate around 1%. What happens when the central bank raise or lowers rates will depend on the circumstances.  The rate in India is so high because they are using it to defend the rupee.  If people earn more interest they have a preference to buy that currency rather than others.  However these people aren't stupid, they realize it's the real rate that matters.  That's why Japan can get away with very low rates and still have demand for the currency - they have, or had, deflation.  When that changed, the preference for their currency changed. So if Canada hast forex driven inflation then the BoC will have to raise rates to defend the dollar for the purpose of lowering inflation from imports.  Whether it works or not is another story.  Note that the Canadian dollar is very dependant on the total dollar value of net oil exports. If Canada has inflation due too an accelerating economy this implies that there are profitable opportunities so businesses and individuals will be more likely to pay a positive real rate of interest.  In that scenario the demand for credit money will drive the real rate of return.