Major Canadian banks responded to the Bank of Canada’s decision to boost its benchmark policy rate to 3.25% on Wednesday by raising their prime lending rates by 75 basis points to 5.45%.
Prior to the announcement, the prime lending rate at Toronto-Dominion Bank, Royal Bank of Canada, Canadian Imperial Bank of Commerce, Scotiabank, Bank of Montreal, and National Bank of Canada was 4.70%.
On Thursday, the new prime rates go into effect. A higher starting point for lenders’ loan calculations is indicated by the increase in prime lending rates at Canadian banks.
Major lenders following the Bank’s policy rate by raising their prime rates, according to Stephen Brown, senior economist for Canada at Capital Economics, will result in an immediate increase in borrowing costs for many Canadians.
According to him, the national average rise in interest payments amounts to around 0.5% of household income, but the costs are disproportionately higher for people with variable rate mortgages because the increase will consume a significantly bigger percentage of their income.
“This is likely to feed through to a reduction in household spending on goods and services and raises the downside risks to the economic outlook,” Brown said.
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