Canada's top mortgage lenders follow BoC's lead
Following the Bank of Canada's (BoC) decision to cut its benchmark interest rate for the first time in four years, Canada's major banks have responded by lowering their prime lending rates.
Major lenders, including BMO, CIBC, RBC Royal Bank, Scotiabank, TD Bank, Desjardins Group, and Laurentian Bank, have lowered their prime rates by 25 basis points to 6.95%, effective June 6.
The rate cut matches the quarter-percentage-point reduction made by the BoC on Wednesday, which brought its benchmark rate down to 4.75%.
“We always look at how our decisions affect Canadians. And mortgages are a big part of that,” BoC senior deputy governor Carolyn Rogers told reporters Wednesday.
Read more: Bank of Canada cuts interest rates
Prime rates influence borrowing costs on products like variable-rate mortgages and lines of credit. The current 2.2 percentage point spread between the prime rate and the central bank benchmark is on the higher end of historical norms.
From the mid-1990s to 2008, that added bank margin averaged around 1.5%. It rose to 1.75% until around 2015, then increased to the current level near 2% on top of the benchmark.
Read next: Fixed-rate borrowers brace for Bank of Canada rate decision amid mortgage renewals
While banks typically adjust their prime rates in response to BoC policy changes, there have been instances where they haven't fully passed on rate cuts.
While unusual for banks to change prime independently of the central bank, such moves can occur at any time. For example, the central bank might cut interest rates by 25 basis points, but BMO might only lower its prime rate by 15 basis points.
However, in this case, most major banks have followed suit.
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