There is no requirement for banks to match the Bank of Canada’s moves in changing interest rates. So there was nothing technically wrong with their decision in 2015 to lower their prime rates by a total 0.3 of a percentage point after the Bank of Canada cut by a combined 0.5 of a point. There were two cuts of 0.25 of a point that year – in January and July.…

Watch for the banks to use stealth tactics if they decide to push the limits on rate increases. One possibility would be to bump up their current mark-ups over prime for lines of credit. Another possibility would be to follow Toronto-Dominion Bank’s example and create a proprietary in-house prime rate for pricing variable-rate mortgages. TD’s mortgage prime is 2.85 per cent, compared with 2.7 per cent for its conventional prime rate.

I’m more afraid of the banks playing games with the definition of Prime than I am of them playing with Prime itself. After all, they have encouragement from the Bank of Canada … its published data for the Canadian five-year mortgage rate (V80691335: Conventional mortgage – 5-year) has been nonsensical for the past several years and it claims that the rate is now 4.64% ho-ho-ho. It makes a mockery of their mandate to provide accurate data to the investing public.

]]>One point that I haven’t seen discussed is if the prime rate will move as much as the BOC does even though it only moved down 30bp on the last 50bp of cuts by the BOC.

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