Today, Bank of Canada (BoC) lowered their overnight rate by 0.5%. This quickly follows US Federal Reserve drop from yesterday’s emergency meeting.

We will have to wait and see if banks match the drop in the prime rate, which affects your variable rate mortgage. The last two times there was a rate drop (going way back to July 2015 and January 2015), the banks did not fully match the 0.25% BoC rate drop, each time only dropping prime rate by 0.15%. Otherwise, going back a decade, every other increase and decrease has been in lock step. So we have two precedents showing banks can go their own way. As well, the cost of funds for banks has risen with the surge in credit spreads, so they may not want to ‘pass on the savings’ to consumers.

An example change in monthly mortgage payments is $30/m per $100K mortgage balance, if full 0.5% drop. However, some variable rate mortgages do not change monthly payment with rate change, you will have to review your mortgage details.  A drop in prime rate also will affect your secured home line of credit.

The announcement paints a picture of rough times. Reference to multiple factors, including coronavirus, rail blockades, teacher strikes and winter storms.

“It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity……Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments.”

BoC also mentions deferring to other economies.

“The Bank continues to closely monitor economic and financial conditions, in coordination with other G7 central banks and fiscal authorities.”

The next scheduled announcement is April 15. An unscheduled emergency rate announcement may not be out of the question. The US Federal Reserve did such that this week.