Prime Now 4.50%

mortgage-rates All the big banks have now followed the leader and cut their prime rate by 1/4%, to 4.50%.

As most readers now know, the Bank of Canada cut rates 1/2% today, hoping lenders would pass along the full savings to consumers.  The last time the big banks deviated their prime rates from the Bank of Canada’s overnight target rate was 11 years ago in 1997.  Today’s divergence is therefore probably a disappointment to the BoC.  Although, they had to know it was a possibility given recent events.

As expected, when Canada’s banks made their prime rate announcements today, there was immediate public outcry.  You can see some of it in the comments on this site.

Obviously, the banks knew the public would be upset, but apparently felt it was an unavoidable evil.  These are unusual times and tight credit markets continue to dictate lending decisions.  At least we can take solace that these times are indeed temporary.

More from the Globe, News1130, FP,…

  1. you know, this smells. i don’t suppose there was any behind the scenes back and forth wherein the BoC and the big 5 figured this would be a nice easy way to give the banks a 1/4% relief without having to cough up actual cash…no, that wouldn’t have happened eh? i’m sure the BoC fully “expected” the banks to follow suit with the whole .5%.

  2. I hate to be a nit-picker but I feel strongly that, as financial advisers of a sort, we need to do everything we can to report accurately . My records show that since the start of 2008 the Overnite Rate has fallen from 4.50% in January to 3.25% at the start of Oct. Bank Prime Rates have gone from 5.75% to 4.75% in the same period. So Canadian banks have in fact widened their spread by 0.25% vis-a-vis the Overnite rate in 2008, and have not always followed the BoC’s lead.

  3. Hi Ritchie,
    Thanks very much for the post. Just so we’re on the same page, which spread are you referring to? Prime – BOC’s Overnight Target Rate? (This is what the story refers to.)
    The target record for 2008 can be seen here: Overnight Rate
    At the start of October the target overnight rate was at 3%.
    According to our sources, the last time prime and the BOC overnight target spread was not 175bps was Sept. 1997. Do you see differently?
    Cheers,
    Rob

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