Canada's Commercial Banks Announce A Cut On Prime Lending Rates After Bank of Canada

After Bank of Canada announced the slashed economic interest rate of 0.5 percent; all the major banks in Canada similarly cut their prime lending rates. CBC News reported that the bank has taken such a move for the second time in these four years to stimulate the recession stricken economy.

The commercial banks toed the line of the Central Bank as it would affect their cost of borrowing and also commercial banks have been passing on the savings or the costs, which is not obligatory. The first to announce a cut on the prime lending rate was TD bank which slashed the rate to 2.75 percent due to start on Thursday. However, the cut rate was only 10 points lower than what it was before whereas Bank of Canada announced a total amount of 25 point cut.

Meanwhile, CIBC, Royal Bank, Scotiabank and the Bank of Montreal all have announced to decrease their prime lending rates by 15 basis points that resulted in 2.7 per cent from 2.85 per cent, effective from July 16. According to CBC news, Economist Todd Hirsch said that slashing of rates would be of little help to Alberta.

After the announcements were made, Canadian loonie reached the lowest level since 2009. It traded at 77.40 cents to the U.S. dollar. This slump in the currency is likely to happen because a cut on interest rates hardly attracts foreign investors. Yesterday the bank reported that its growth has considerably gone lower since April. It also reported that Canadian economy has shrunk resulting in a modest contract of the Real GDP across the first quarter of his year.

The bank forecasted a small rebound of 1.1 percent growth in GDP later this year, however, growth of 1.9 percent was what the bank had expected. Doug Porter, BMO economist said that the situation was much “bleaker” than others in the recent past. Before the Bank of Canada cut the rate to 0.75 in January, it had been at one per cent since late 2010, reported CBC.

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