Canada banks go for smaller cuts to prime rates

[Source - Reuters - By Lynne Olver]

Canadian banks will pass along only part of a central bank rate cut to borrowers, with Toronto-Dominion Bank (TD.TO: Quote, Profile, Research, Stock Buzz) being the first to announce on Wednesday it will lower its prime lending rate by 25 basis points to 4.50 percent.

That is only half of the 50 point cut in administered rates made by the Bank of Canada earlier on Wednesday, when it acted with other central banks to lower key lending rates in an attempt to shore up investor confidence and ease the effects of the global credit crunch.

The Bank of Canada dropped its overnight rate target to 2.5 percent.

Canadian Imperial Bank of Commerce (CM.TO: Quote, Profile, Research, Stock Buzz), Royal Bank of Canada (RY.TO: Quote, Profile, Research, Stock Buzz) and Bank of Nova Scotia (BNS.TO: Quote, Profile, Research, Stock Buzz) said they would make the same reductions as Toronto-Dominion, bringing their prime rates to 4.50 percent from 4.75 percent, effective Thursday. Other banks were likely to follow suit, based on past patterns.

The prime rate influences borrowing rates on other consumer and business loans.

"There's certainly no rule that states that they have to cut their rates in lockstep with the Bank of Canada," said Steve Foerster, a finance professor at the University of Western Ontario's Ivey School of Business.

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