Interest rates are on the up yet again
Prime interest rates at Canada’s top six banks increased in the wake of the central bank’s latest rate hike, with each of the lenders moving that rate by 25 basis points to 7.2%.
The move, effective from July 13, was revealed by RBC, TD Canada Trust, CIBC, Scotiabank, and National Bank following the Bank of Canada’s decision to increase its trendsetting policy rate for the second consecutive announcement – and 10th time since March of last year – on Wednesday.
Prime rates traditionally rise and fall in line with that overnight rate, which heavily influences variable interest rates in Canada.
Defined as the rate offered by leading banks to their most creditworthy customers, the prime lending rate has surged at each of the country’s top lenders over the past 16 months amid the central bank’s series of aggressive rate hikes aimed at tamping down inflation.
ICYMI: We’ve made a lot of progress in the fight against inflation, but we’re seeing persistent price pressures. Monetary policy still has work to do. Our job is not done until inflation returns to the 2% target.https://t.co/zyuRcYx7lF#economy #cdnecon pic.twitter.com/dR1IjJmgc4
— Bank of Canada (@bankofcanada) July 13, 2023
How have prime rates at the top banks changed in recent times?
In March 2022, the Bank of Canada’s policy rate remained rooted at a rock-bottom 0.25%, having stayed there throughout much of the COVID-19 pandemic in response to economic turmoil and financial uncertainty across the globe.
As the consumer price index spiked, the Bank embarked on a spate of interest rate increases to tackle rampant inflation, which hit a 39-year high of 8.1% in June of last year.
That resulted in a similarly sharp upward trajectory for prime rates, which jumped quickly from unusually low levels during the pandemic to their current highs.
Prime rates have increased in line with a total 475-basis-point hike in the Bank’s policy rate since last year – and the Bank’s governor Tiff Macklem did not rule out further increases after Wednesday’s announcement.
Speaking at a press conference after this week’s hike, Macklem said that while the central bank was cautious about not doing more than it had to, it was “prepared to increase [the] policy rate further” if required.
Some market observers including CIBC World Markets deputy chief economist Benjamin Tal have indicated that a further 25-basis-point increase in September appears likely.
