The Bank of Canada has been lowering interest rates to try and get consumers back on some sort of spending spree. The problem is, the only people who have access to the Bank of Canada, is the banks. Normal Joes like you and me don't exactly have access to borrow money from the Bank of Canada at their posted rates.
The Bank of Canada will lower their interest rates in hopes that the chartered banks will also lower theirs to help increase spending. By having a lower rate, it makes money cheaper to borrow and spend.
The problem with this is, the Bank of Canada is living on hopes and dreams of a commercial company, which purpose is to lend money to people and make some cash at the same time. After all, the banks are responsible to their shareholders who are looking for good profits in order to drive the share price up.
But what's the point of the Bank of Canada lowering their interest rate to encourage spending when the chartered banks don't follow suit.
Today a article from the CBC quotes a former Toronto-Dominion Bank economist said the lower rates being offered by the Bank of Canada, aren't helping.
That's because those interest rate cuts aren't always being passed onto the consumer. In fact, my line of credit did the total opposite of decreasing and increased recently. The TD Bank informed me that most line of credit's increased to 4-5% above TD prime, while mine only increase to 3.5% above TD prime. This represents an increase of 1.5% per year. Not much, but not exactly encouraging for those looking to spend money.
With that being said, I recently also lowered my line of credit to 1/4th it's old max since I didn't exactly have a need for that much money anyway. The connection is that the lower your maximum amount, the higher your credit rating so the bank did have two reasons to increase my line of credit.
Back on track, I think something needs to be done to assist with the lowering of interest rates at the consumer level so that the cuts the Bank of Canada makes, are felt at the consumer level and not just left for the companies to completely benefit through their profit maximization.
Maybe if the Bank of Canada rate cuts were only applicable to those banks who agree to pass the savings onto their consumers. Say a cut of 0.5% would be applicable if the bank agreed to pass on at least 95% of that to consumers.
Don't forget to subscribe to John's blog via email. This will notify you of all blog posts on web design, web development, social media and the odd post about PEI. Just enter your email address in the box to the left.