This article was last updated on April 16, 2022
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In light of Bank of Canada governor Stephen Poloz’s most unexpected announcement to cut the bank’s overnight lending rate a quarter of a percentage point to 0.75 per cent on Wednesday, analysts are curious how Canada’s big banks will respond. According to one expert, the banks might lower their mortgage rates after the central bank’s surprise rate cut this week and once one of them does the rest will “clamour for the market share.”
Whereas on the other hand, majority economists are anticipating a corresponding drop in mortgage rates, though all banks have yet to unveil their response to Poloz’s decision. Editor of ratesupermarket.ca, Penelope Graham, mentioned that usually banks have responded to rate cuts with a 25 to 50-basis point cut in their own prime lending rate but since Poloz indicated further cuts could be on the way, the banks “may be biding their time.” Graham alleged that “they may be waiting to see where the Bank of Canada overnight lending rate may settle.” She said that “with the average five-year variable rate at 2.5 per cent, cutting it from there might draw the ire of the Department of Finance for prompting risky borrowing practices.”
During his correspondence with reporters, Poloz warned that household debt levels continue to concern him and he does not want to see Canadian families take on more debt. However, he clarified that the primary goal of the rate cut is to open credit channels for non-energy sector businesses that are looking to expand, including hire more staff.
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