Many economists in Canada are expecting the Canadian Banks to hold their Prime Rates, despite the Bank of Canada decision today to drop the overnight lending rate by a quarter point to 2.25%.
The Canadian Banks earlier this month followed a similar trend when the Bank of Canada lowered their rate to 2.50% and the Banks did not pass on the full extent of the cut when the Banks lowered their Prime Rates at that time.
Some economists forecast that the Bank of Canada will lower their overnight lending rate to 2.00% by year-end.
Prime Rates are used as a benchmark to set most consumer loan rates in Canada, such as mortgages and lines of credit. Unlike Canada, many US banks peg mortgage rates off LIBOR, the rate on inter-bank borrowing. That means US banks can match a central bank cut and drop prime rate with little impact on the profitability of their consumer loan portfolios.
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