Taking their cue from the Bank of Canada, the country’s commercial lenders have lowered their prime interest rates by 25 basis points, providing some modest relief to consumers.
On May 5th, the Bank of Canada cut its trendsetting overnight interest rate for the first time in four years, dropping it to 4.75% from 5% previously.
Now, Canada’s major banks, including Royal Bank (RY) and Bank of Montreal (BMO), have each lowered their prime interest rates to 6.95% from 7.20% previously.
Prime interest rates determine the rates that banks charge on variable loans such as mortgages and lines of credit.
Despite the cut, prime interest rates remain near historic highs in Canada.
The banks have taken advantage of high interest rates in recent years to charge 2.2 percentage points of additional interest on top of the Bank of Canada’s benchmark interest rate.
In the past, Canada’s banks have typically added 1.5 percentage points to the central bank’s benchmark rate.
When it comes to interest rates, Canada’s banks act in concert with each other and tend to charge the same amounts.
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