Canadians hoping for a big break on their mortgage, or cheaper cash on their lines of credit may be disappointed.
Economists say it is unlikely the major banks will match the Bank of Canada's second benchmark interest rate cut this year. Instead, they appear poised to pocket much of the savings and pass only a portion down to consumers.
The central bank is clearly hoping to stimulate the economy while avoiding adding to Canadians' already troublesome debt levels, says Angelo Melino, a University of Toronto economics professor and former special adviser to the Bank of Canada.
As a result, the major banks response will likely "be muted," says Melino.
"There'll be some encouragement to borrow more, but it won't be as much as you usually get from a cut."
The Bank of Canada announced Wednesday it lowered its benchmark interest rate to 0.5%. In January, it surprised analysts and slashed its interest rate by a quarter of a percentage point, down to 0.75%, after sitting at 1% for nearly five years.
The central bank's rate sets the interest rate for money that the major banks and other institutions lend to one another for one-day periods.
Banks aren't required to match any changes from the central bank in their prime lending rates. But they've generally followed suit, passing on their borrowing savings, or costs if the benchmark rate is raised, to consumers.
After January's surprise drop of 25 basis points, the country's major banks declined to lower their rates by the same amount. Instead, over the course of a week, all five lowered their prime lending rates by 15 basis points, just a little over half.
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