January 27, 2015 / 9:29 PM / in 3 years

Canada's RBC and BMO move to cut prime rates

TORONTO (Reuters) - Royal Bank of Canada, the country’s biggest lender, said on Tuesday it would cut its prime lending rate by 15 basis points, becoming the first of Canada’s big banks to trim borrowing costs nearly a week after the central bank stunned markets with a rate cut.

A Royal Bank of Canada (RBC) logo is seen on Bay Street in the heart of the financial district in Toronto, January 22, 2015. REUTERS/Mark Blinch

Bank of Montreal BMO.TO, Canada’s fourth-largest bank, quickly followed suit.

The moves by RBC RY.TO and BMO take their prime rates to 2.85 percent from 3 percent, effective Wednesday, the banks said.

Canada’s biggest banks, which also include Toronto-Dominion Bank TD.TO, Bank of Nova Scotia BNS.TO, Canadian Imperial Bank of Commerce CM.TO and National Bank of Canada NA.TO, have come under fire for not immediately cutting their lending rates after the central bank’s rate cut.

By not passing on the full rate cut to borrowers, the banks can protect their net interest margin, which boosts profits.

Typically, once one bank cuts its prime rate, the others follow in order to remain competitive with borrowers.

The Bank of Canada surprised markets with its Jan. 21 decision to cut overnight borrowing costs by a quarter of a percentage point, to 0.75 percent, to counter the effects of cheaper oil on economic growth and inflation.

Reporting by Andrea Hopkins and Alastair Sharp; Editing by Dan Grebler

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