Tuesday, July 21, 2015

Banks cut prime lending rates after Bank of Canada slashes benchmark rate to 0.5%

CBC NEWS: By Pete Evans, CBC News Posted: Jul 15, 2015 10:07 AM ET Last Updated: Jul 15, 2015 10:55 PM ET

2nd time since January that central bank has cut lending rate

Canada's big banks have all cut their prime lending rates following the announcement that the central bank had lowered its benchmark interest rate to 0.5 per cent.

It was the second time this year the Bank of Canada had dropped the rate to stimulate the economy, after holding the rate steady for about four years.

The central bank's rate influences the rates that commercial banks offer because it affects their cost of borrowing. Although they're not obligated to, banks tend to pass on the savings or the costs.

TD Bank announced within minutes of the Bank of Canada's decision that it will cut its prime lending rate to 2.75 per cent, starting Thursday.

But TD's cut was initially only 10 basis points lower than it had been, not a 25-point cut that the central bank announced. TD had pocketed a similar amount when the central bank cut its rate by 25 points in January, passing on only 15 basis points to its customers.

Later in the day, however, Royal Bank, the Bank of Montreal, CIBC and Scotiabank all announced they were decreasing their prime lending rates by 15 basis points to 2.7 per cent from 2.85 per cent, effective July 16.

TD eventually followed suit, matching the other banks at 2.7 per cent.

Economist Todd Hirsch with ATB Financial says the rate cut will be of limited help in Alberta.

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