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Bank prime rate vs Bank of Canada overnight target rate

Many financial analysts are predicting that probably BoC would not make a move till mid-2013. Some forecasters are bit more optimistic; they are saying that in future the bank may lower the target rate by 0.25%.

Variable Rates appear to be very promising recently. So, a rate cut may bring in some extra saving. Unfortunately we don’t borrow from BoC. Before a borrower gets to see the rate cut, the banks need to reduce their prime rate once the central bank gives them a break.

If BoC lowers its target then it is my money, if BoC goes up – it is your risk.

In 2009, Canadian banks denied to pass the BoC rate adjustment to the borrowers. It is very obvious that a lower rate was not passed on to the homeowners but a hike in rate by BoC has been always forwarded to the borrowers.

Recently in Australia it has happened. Australian Reserve Bank announced to cut its rate by 0.25% and the banks failed to reduce their rates.

Similarity between CAN and AUS Banks:

Although the countries are oceans apart the banks are showing seemingly similar results. They are cash stuffed and made good profit in the last quarter and reluctant to give consumers a break.

So, the point is that we should not get too excited about the BoC’s next move as there may not be any good news for us.