Bank of Canada – Prime Lending Rate

Back in January, the Bank of Canada made a surprising announcement that they would be lowering the prime lending rate. It went from .25% to .75%, what does it mean?

The Bank of Canada made this decision due to many economic changes, including the sharply declined price of oil. Though this change has hit Alberta quite hard, the lower price is expected to boost global economic growth; especially in the USA. Taking into account the falling Canadian dollar as well, this economic scenario will encourage non-energy industries to develop further due to more attractive financing. Due to the lower oil price, the inflation rate is expected to fall as well. From these aspects of the economics in Canada, it is simple to see that the Bank of Canada is lowering the prime lending rate in order to create some insurance for our economy moving forward.

This announcement is a great benefit with those who have a variable rate, because the interest rate is based on the prime lending rate! This includes those who are holding mortgages, loans, and lines of credit depending on the rate negotiated. Banks across the country will look at the Bank of Canada’s prime lending rate on an ongoing basis and adjust their prime lending rate to be about 2% higher. In the wake of the announcement, most banks held their prime rate quite steady as they are not mandated to change when the Bank of Canada does. We often have to remind ourselves that banks are a business too and therefore needs to make a profit to stay active. On the international scale, Canada’s banking system is quite strong, so our bottom line is not likely to drop in the near future because our banks have worked hard to strengthen our collective bottom line.

If you would like more clarification on this topic or want to discuss how these changes may affect you, feel free to contact us at AC Lending Group!