The Bank of Canada acted aggressively and cut rates 1/2% this morning.  It was a move that was anticipated by many.

What wasn’t anticipated is how long it would take big banks to lower prime rate.  As of 5:00pm EST not one commercial bank had lowered their prime rate.

This is rather unusual.  With a few exceptions, most of the time the big banks announce their changes to prime rate the morning of the Bank of Canada’s announcements.  See this chart below for recent release times.

Until TD lowered its prime rate today at 5:06pm, it had some people wondering if TD’s speculation a few months ago (that prime rates might not move) would come true.  Indeed, prime-bankers acceptance spreads have compressed to the point that many lenders’ cost of funds have increased with today’s rate cut.  It’s being caused by the same old story: investors wanting risk premiums in today’s uncertain credit markets.

That said, most expect the rest of the big banks will lower their prime rates tonight.  Caisse Desjardins (not a big bank but still a big player) has already lowered their prime rate 1/2% to 4.75%.

Here is the full Bank of Canada release from this morning.  In general, economists are looking for another 1/4% cut by years end.  As for the BoC’s position, they stated earlier today that “further monetary stimulus will likely be required to achieve the inflation target over the medium term.” 

The next rate meeting is June 10.
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Thanks to Merix for the heads up on the spread issue.

Thanks to the Bank of Canada for the above rate announcement chart.