The Financial Post reports in its Wednesday edition that the market has priced in a rate increase, with markets and analysts were indicating there was a 92-per-cent chance the Bank of Canada would on Wednesday announce that it will hike its overnight interest rate target by 25 basis points to 0.75 per cent. The Post's Drew Hasselback wonders where these odds come from. The answer has to do with the way that the BoC implements its policy interest rate. Major banks and financial institutions are constantly transferring funds to one another in the Large Value Transfer System. Banks need to settle those large transactions each day. If a bank is short, it can briefly borrow the funds it needs in an "overnight" market. The interest rate for this overnight market fluctuates with supply and demand, but trades within an "operating band" set by the BoC. The bank's "target rate" sits at the centre of this operating band. This is the policy rate you see making all the news, because it influences a host of other market rates, such as consumer loans and mortgages. Because that overnight target rate fluctuates, traders are willing to make deals to swap the current overnight rate for a future fixed interest rate.