The Bank of Canada has slashed its key overnight lending rate by 75 basis points yesterday, to 1.5%. The Chartered Banks’ new prime rate is 3.50%. Many Bank watchers had been anticipating a cut of just 50 basis points.
“The outlook for the world economy has deteriorated significantly and the global recession will be broader and deeper than previously anticipated,” the Bank said in a statement. “Measures taken by major governments are beginning to encourage credit flows, although it will take some time before conditions in financial markets normalize.” The Bank said that the Canadian economy had unfolded as expected through the summer and early fall, and admitted that it is now following the rest of the world’s economies into recession.
Lower borrowing cost is good news if you have debts. However, you may be surprise d to find out that credit cards have not lowered their interest rates and Home Equity Line of credit have only dropped by a fraction of recent cuts. The spread banks now make between mortgages / HELOC and GICs is getting thinner. Major Banks have reported that they can’t pass on the full reduction of recent rate cuts to the consumer. New HELOC rates now range from prime +.5% to prime +1% currently from 4.25% to 4.75%.
Please note that if you have a HELOC in place you may be grandfathered the Bank’s prime rate of 3.5%. Make sure to never close that grandfathered HELOC. You may never be able to get prime rate again.