RBC Pares Prime Rate, Matching Bank of Canada’s Surprise Cut

(Bloomberg) -- Royal Bank of Canada cut its prime rate by 50 basis points, matching Bank of Canada’s latest emergency rate cut.

Canada’s largest lender by assets reduced the key rate to 2.45% from 2.95%, the Toronto-based bank said Friday in a statement. Canada’s central bank unexpectedly cut its overnight lending rate by another half a percentage point to 0.25% on Friday, its third move this month amid efforts to shield the economy from the Covid-19 fallout. The prime rate influences borrowing rates for variable mortgages and credit lines.

Bank of Nova Scotia also reduced its prime lending rate a half-point to 2.45%.

Canadian banks typically move their prime rates in tandem with the central bank, though there have been exceptions to this general rule. The reduction may help existing borrowers with floating-rate loans, but not so much those seeking new loans.

That’s because lenders have been eliminating discounts off prime on variable mortgages and lifting rates on fixed-term home loans in the past week as the industry braces for additional financial stresses from struggling businesses and vulnerable households. Amid a wave of layoffs across industries and a surge in jobless claims, the nation’s six biggest banks have faced hundreds of thousands of requests to defer mortgage payments within the first week of announcing a new Covid-19 relief plan.

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