The central bank's announcement sets the tone for the Big Six
Canada’s largest banks have raised their prime lending rates significantly from 5.95% to 6.45%, effective today.
Royal Bank of Canada was the first of the Big Six to announce the adjustment to its prime rate, in response to the Bank of Canada’s 50-basis-point hike that saw its rate reach 4.25%. This level is currently the highest it has been since early 2008.
Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, and Toronto Dominion Bank also implemented 0.5% increases in their prime rates.
What guided the Bank of Canada’s hike?
A major driver of the central bank’s decision was the stronger-than-anticipated economic growth during the third quarter.
“The economy continued to operate in excess demand,” the BoC said. “Canada’s labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline.”
The institution assured that it will keep a close eye on how this tighter policy environment will influence demand, as well as the knock-on effects on supply and inflation.
“Quantitative tightening is complementing increases in the policy rate,” the BoC said. “We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.”
