The Bank of Canada announced at 9am EST that it is cutting the overnight lending rate by one half of one percent. The rate has been reduced now 1.50% since last fall indicating an expectation of a slowdown in growth over.
The overnight lending rate is the target lending rate established by the Bank of Canada for overnight loans between institutions. Canada’s chartered banks establish their prime lending rates based on the overnight rate. However, the banks are not required to change their prime rates following changes in the Bank of Canada’s overnight lending rate.
If Canada’s banks lower their prime rates, the cost of borrowing funds becomes less expensive. If you hold a variable rate mortgage your cost of borrowing will be lowered considerably and your term to maturity will be reduced as well. Conversely, investors will see lower returns on new debt investments such as GIC’s and bonds.
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