Banks raise prime rate after Bank of Canada interest rate increase
Canada's major banks, including RBC, TD, BMO, CIBC, Scotiabank, and National Bank, raised their prime rates by 25 basis points to 4.70% following the Bank of Canada's policy rate increase to 2.5%. The change is effective October 29, 2023.
How this was made
The 30-second read
Why it matters
The coordinated prime rate hike signals tighter monetary conditions in Canada, likely curbing borrowing and putting pressure on bank earnings.
Market read
Canadian bank stocks may face short-term downside as higher prime rates affect loan demand and margins.
What to watch
Potential benefit to deposit‑taking banks from higher deposit rates and improved credit quality.
Background
The Bank of Canada raised its policy rate by 25 bps to 2.5%, prompting major Canadian banks to lift their prime rates to 4.70% effective Oct. 29.
Ticker impact
Royal Bank of Canada raised its prime rate to 4.70% after the BoC policy rate hike.
likely downside as market prices in reduced loan demand
Prime rate hikes increase borrowing costs for customers, which can hurt earnings growth for Canadian banks.
Toronto-Dominion Bank lifted its prime rate to 4.70% following the BoC rate increase.
likely pressure on the share price
Higher prime rates can reduce loan growth and increase credit risk, affecting profitability.
Bank of Montreal increased its prime rate to 4.70% in line with other big Canadian banks.
potential downside as investors price in weaker loan demand
Prime rate hikes raise borrowing costs, which can dampen loan activity.
Canadian Imperial Bank of Commerce raised its prime rate to 4.70% after the BoC decision.
likely modest decline
Higher rates may reduce consumer borrowing and affect net interest income.
Bank of Nova Scotia lifted its prime rate to 4.70% in response to the BoC hike.
likely pressure on the stock
Higher prime rates can curb loan demand and increase default risk.
Market effects
Canadian banking sector faces uniform rate pressure, potentially lowering sector valuation.
Canadian equities may see modest declines as higher rates affect loan growth.
Limited; primarily impacts North American financials and currency markets.
Counterpoint
Higher prime rates could improve net interest margins if loan rates rise faster than funding costs.
Key entities
- central_bankBank of Canada
Raised policy rate by 25 bps to 2.5%.
- bankRoyal Bank of Canada
Raised prime rate to 4.70%.
