Deciphering the prime lending rate announcement

Last week the Bank of Canada surprised everyone by lowering the prime lending rate. They dropped the prime lending rate by .25% to .75%. The media have been all over this but what does it actually mean? Let’s break it down a bit into an informative little article written for the average consumer who does not have a degree in economics.


The first reason the Bank of Canada cited for this change is the sharp decline to the price of oil. Here in Alberta we are well aware that this has been happening. The lower price of oil is expected to boost global economic growth especially in the U.S.

The falling Canadian dollar will help to boost non-energy based industries as we see an increased demand for those products from foreign economies.

Another reason cited is that inflation has remained close to the 2% target in recent quarters. The weaker oil prices will pull down the inflation profile.

So basically the Bank of Canada is reacting to the oil price shock and is attempting to provide some insurance against the risks to the entire economy going forward.

What now?

So the announcement was followed by the gleeful hoorays of those who opted for a variable rate mortgage.

A variable rate is where the interest rate is based on the prime rate less an ongoing discount or plus an ongoing premium. For example, if you opted for a variable rate mortgage recently your rate is likely around prime, which is currently 3%, less .6% or 2.40%.

The Bank of Canada sets their prime lending rate and the banks’ prime lending rate is at 2% higher.

Most people thought that the recent announcement would see their rate fall by the .25% to match the Bank of Canada decrease but that has not been the case. At the time I am writing this article, none of the big five banks have opted to decrease their prime lending rate as of yet.

They are not mandated to do so though it is likely that if one of them does they all will and that the decreases would happen within hours of each other.

Let’s remember that banks are a business with shareholders and investors and the goal is to produce a strong profit each year. Profit is not a dirty word and considering that our banking system is the envy of many it is a very good thing they are run the way they are.

Remember the international economic troubles in 2006-2009?

Our strong banking system is cited as one of the reasons we made it through far easier than other countries. So all that being said, the banks may be working towards strengthening the bottom line which may mean no rate drops in the near future.

You may also be affected by this if you opted for a loan or a line of credit based on the prime rate plus or minus whatever discount you negotiated.

The Bank of Canada is scheduled for its next announcement on March 4th. Economists are forecasting an additional decrease by the Bank of Canada but we will just have to wait and see.

Pam Pikkert is a mortgage broker with Dominion Lending Centres – Regional Mortgage Group in Red Deer.

Just Posted

Team Alberta adds nine medals on day two of competition at Canada Winter Games

Team Alberta had a solid day at the 2019 Canada Winter Games in Red Deer

PHOTOS: Canada Games action from the Gary W. Harris Canada Games Centre

Wheelchair basketball, short-track speedskating draw large crowds

Let the Games begin!

Team Alberta takes home gold and silver in speed skating on day one

‘Mitts don’t just warm hands. They warm hearts’: Mitts for Many Program launches

Donate new or lightly used mittens to bin in the Great Hall of the Gary W. Harris Centre

WATCH: Historic night in Red Deer as 2019 Canada Winter Games kicks off

Star-studded Opening Ceremony welcomes athletes from across Canada

Trudeau’s principal secretary, Gerald Butts, resigns amid SNC-Lavalin furor

Butts categorically denies the accusation that he or anyone else in the PMO improperly pressured former attorney general Jody Wilson-Raybould

NDP Leader Jagmeet Singh calls for public inquiry over SNC-Lavalin questions

Vancouver member of Parliament Jody Wilson-Raybould resigned from cabinet last week

Body found after apparent house explosion in Calgary, police investigating

Sgt. Dwayne Lepchuk declined to say whose remains were found

Canadian airlines waiting for guidance from Ottawa over X gender option

Major U.S. airlines said they will change their process so passengers can identify themselves along non-binary lines

Deported B.C. man who came to Canada as a baby granted chance at return

Len Van Heest was deported to the Netherlands in 2017

Sex abuse survivors to meet with Vatican summit organizers

Pope Francis has urged participants to meet with abuse victims before they came to Rome

Ex-FBI official: ‘Crime may have been committed’ by Trump

Andrew McCabe said FBI had good reason to open a counterintelligence investigation into whether Trump was in league with Russia

Most Read