Following the Bank of Canada’s drop in interest rates this morning by 0.5% Canada’s big banks followed suit and cut their prime rates by the same 0.50% to 3.00%. This will be welcome news to variable rate mortgage holders and those mortgage shoppers looking for variable rates.
The changes were as follows:
RBC Royal Bank – prime rate 3.00% effective January 21, 2009
TD Canada Trust – prime rate to 3.00% – effective January 21, 2009
CIBC lowered its prime rate to 3.00%, effective Jan. 21, 2009.
Bank of Montreal (BMO) lowered its prime rate to 3.00% – effective Jan. 21, 2009.
The fact that these mortgage lenders cut their prime rates so quickly and matched the 0.50% cut by the BoC is not only great news for variable mortgage holders, but also for all Canadians as it could indicate that interbank lending is starting to recover again. A few months back when the central bank cut rates, by 1%, many financial institutions either didn’t match the cut and only dropped rates by 0.25% or 0.50% or delayed any move for a few weeks.
This wasn’t for greedy or profit reasons, but mainly because the financial crisis meant that credit was tight and cash was at a premium, so interbank lending was minimal. This then increased the rates banks were lending to each other, and meant they couldn’t pass on the interest rate cut to their customers as their borrowing rates were higher than normal. Lets hope this is a sign of good things to come.