The Bank of Canada’s cut its overnight lending rate Wednesday and once again the country’s financial institutions seem unlikely to pass on the full extent of the reduction to consumers.
The central bank reduced its overnight lending rate to 0.5 per cent, despite some concern lower rates could heat up housing markets in key Canadian markets by making debt cheaper.
That concern may turn out to be misplaced as one major bank immediately announced it was only lowering its prime lending rate to 2.75 per cent — passing on 10 basis points of the 25 basis point reduction.
Consumers borrowing with a variable rate mortgage — about one quarter of the country — are immediately impacted by any changes to the floating prime rate. The rest of the country chooses fixed rate mortgages.
Toronto-Dominion Bank was the first out of the blocks Wednesday after being one of the last major banks to agree to a rate reduction when the central bank lowered in March.
“It will be interesting to see if other banks follow suit or someone will take a more competitive approach,” said Penelope Graham, editor of RateSupermarket.ca. “Remember, TD last time was the initial hold out and said we are not going to change rates at all. They followed when everybody else implemented cuts.”
In March, when the central bank lowered its key landing rate to 0.75 per cent, financial institutions initially refused to pass on the reduction. After some pressure, the banks buckled and lowered their prime rate to 2.85 per cent.
Vince Gaetano, principal at monstermortgage.ca, figures the banks likely assume it’s the middle of the summer and they don’t have to do much to lower rates to attract consumers.
“You only get a portion of it. They bring it back to 2.75 per cent and that’s where it should have been before,” said Gaetano, “The banks continue to make billions and strikes me as a concern that consumers are not more up in arms over this stuff.
Article by Garry Marr from www.financialpost.com