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Canada's big banks hike prime lending rates

Blog by Shaun Kimmins | June 1st, 2010


Both RBC Royal Bank and TD Bank Financial group bumped up their prime lending rates by 25 basis points to 2.50%, the same amount the Bank of Canada did Tuesday morning.

Canada's major banks raised their prime lending rates 25 basis points Tuesday in the wake of the Bank of Canada's decision to hike its benchmark interest rate to 0.5%.

RBC Royal Bank and TD Bank Financial group were first to bump up their prime lending rates to 2.50% Tuesday.

They were followed by Bank of Montreal, CIBC, National Bank Financial Group, Laurentian Bank and Desjardins group.

Meanwhile, earlier Tuesday the Bank of Montreal actually lowered its five-year fixed rate mortgage by 10 basis points to 4.25%, a move geared at house hunters who are worried they have missed the boat on a low-interest borrowing environment.

The prime rate is generally the base interest rate from which other rates for lending are derived, such as for mortgages, loans or credit cards.

The rate changes made by Canada's major banks are generally made in close concert with each other and with the Bank of Canada.

Canada's central bank raised its benchmark interest rate for the first time since the middle of 2007 Tuesday morning, a move that had been long predicted by economists and seemingly confirmed by robust GDP growth numbers reported a day earlier.

The Bank had previously said it would maintain rates until at least the summer of 2010.

However, comments made by Governor Mark Carney Tuesday cautioned Canadians not to necessarily expect a succession of rate increases in coming months either, as the country continues to navigate through a delicate recovery while keeping an eye on a rising loonie.

Nonetheless, Canada's primary securities dealers largely stood by their interest rate forecasts for the rest of the year on Tuesday, expecting the Bank of Canada to build on its first rate hike in three years.

The central bank said there was "considerable uncertainty" regarding the outlook, making its next move highly unpredictable in light of developments in Europe. Still, all but one of Canada's 12 dealers, surveyed by Reuters, forecast the central bank would raise interest rates in July. Eleven of 12 also forecast rates would rise by 25 basis points in each of September and October.

Four different dealers expect at least one pause in rate hikes sometime in the balance of this year. Year-end interest rate forecasts ranged between 1.00% and 1.5%.

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