Can you really blame the banks?

Bank of Canada keeps cutting rates, but big banks aren’t passing along the savings

Mark Carney, the Governor of the Bank of Canada, is expected to cut the Bank’s key rate by half a percentage point tomorrow to help stimulate the economy. But there’s a problem: Lately, the banks haven’t passing along these rate cuts to consumers. Economists say it’s like ‘pushing on a string,’ with the central bank cutting rates, but all the slack is bunching up in the charter banks. In a way you can’t blame them, because trying to force interest rates to an all time low right now doesn’t make sense in some ways. The truth is, money to lend is in short supply, and banks have never been more concerned about defaults. So why would they keep lowering the interest rates they charge borrowers? How are they being compensated for the risk they’re taking by lending out money? Anyway, it will be a moot point soon. If the key rate is cut to 1.0 per cent tomorrow as expected, there won’t be a lot of cutting room left.