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RBC and Canada’s Big Banks Cut Prime Rate: What It Means for Homeowners, Investors, and the Economy

In a move that’s sending ripples through Canada’s financial landscape, the Royal Bank of Canada (RBC) and the country’s other Big Six banks have slashed their prime interest rates by 25 basis points—from 4.70% to 4.45%—effective October 30, 2025. This decision follows the Bank of Canada’s recent rate cut, a signal that the central bank is responding to cooling inflation and a softening economy.

For millions of Canadians—homeowners with variable-rate mortgages, small business owners, and investors—this shift isn’t just a headline. It’s a tangible change in their monthly budgets, borrowing costs, and financial strategies.

Let’s break down what’s happening, why it matters, and what it could mean for your wallet.

What Just Happened? The Rate Cut, Explained

On October 30, 2025, RBC, CIBC, TD Bank, Scotiabank, BMO, and National Bank all announced they were lowering their prime lending rates to 4.45%, matching the Bank of Canada’s policy rate reduction. The move was swift and coordinated—a clear indication that Canada’s banking sector is aligning with the central bank’s new monetary policy direction.

“All Big Six banks cut prime rate to 4.45% following Bank of Canada move,” reported Canadian Mortgage Trends, confirming the synchronized action across the sector.

This is the first prime rate cut since early 2024, marking a potential turning point after a long cycle of aggressive rate hikes aimed at curbing inflation.

The Bank of Canada had earlier lowered its overnight rate from 5.0% to 4.75%, citing “easing inflation pressures” and a “more balanced” economy. With inflation now hovering near the 2% target—down from a peak of over 8% in 2022—the central bank has room to ease monetary policy.

And when the Bank of Canada moves, the big banks follow—especially on prime rates, which are directly tied to the central bank’s policy rate.

Recent Updates: A Timeline of the Rate Shift

Here’s how the events unfolded, based on verified news reports:

• October 23, 2025: The Bank of Canada announces a 25-basis-point cut to its overnight rate, bringing it down to 4.75%. In its policy statement, the central bank notes “inflation has returned to target and is expected to remain close to 2%.”

• October 28–29, 2025: RBC, CIBC, TD, BMO, and National Bank issue press releases confirming they will reduce their prime rates to 4.45%, effective October 30, 2025.

• October 30, 2025: Scotiabank joins the group, also cutting its prime rate to 4.45%, as reported by MarketScreener. This completes the alignment of all Big Six banks.

• Same day: Financial institutions begin updating online banking platforms, customer notifications, and mortgage calculators to reflect the new rate.

“Scotia joins Laurentian, National, CIBC, BMO, RBC and TD in decreasing their prime rates by 25 basis points,” noted MarketScreener, underscoring the industry-wide consensus.

This coordinated action is not unusual. When the Bank of Canada changes its policy rate, major banks typically follow within days to maintain competitive parity and align with market expectations.

Why Prime Rate Matters: More Than Just a Number

The prime rate is more than a headline—it’s the benchmark interest rate that banks use to set rates for variable-rate mortgages, lines of credit, personal loans, and small business loans.

For example: - A $500,000 variable-rate mortgage at prime minus 0.5% now sees its rate drop from 4.20% to 3.95%. - That translates to savings of about $75 per month—or $900 per year—for the average homeowner.

But it’s not just mortgages. The prime rate affects: - Home Equity Lines of Credit (HELOCs): Lower rates mean cheaper borrowing against home equity. - Small business operating lines: Entrepreneurs can access capital at lower costs. - Student lines of credit: Graduates and students see reduced interest on education debt.

For RBC and other banks, the prime rate is a cornerstone of their lending business. RBC, as Canada’s largest bank by market capitalization, has over $1.5 trillion in assets, with a significant portion tied to variable-rate products.

And while the cut benefits borrowers, it also squeezes lenders’ net interest margins—the difference between what banks earn on loans and what they pay on deposits. This could pressure bank profitability in the short term, especially if rates continue to fall.

Contextual Background: From Rate Hikes to Rate Cuts

To understand the significance of this cut, we need to look back.

The Inflation Battle (2022–2024)

From 2022 to 2024, the Bank of Canada raised its policy rate 10 times, from 0.25% to 5.0%, in an effort to cool the economy and rein in inflation. The prime rate climbed in lockstep, peaking at 7.20% in 2023—the highest in over two decades.

During this period: - Mortgage payments skyrocketed, especially for those on variable rates. - Home sales slowed, particularly in hot markets like Toronto and Vancouver. - Consumer spending dipped, as higher borrowing costs pinched household budgets.

The Pivot to Easing (2025)

Now, with inflation under control and economic growth slowing, the Bank of Canada is shifting gears. The October 2025 rate cut signals a dovish pivot—a move toward stimulating growth rather than suppressing inflation.

This isn’t the first time Canada has seen such a cycle. Similar shifts occurred in: - 2008–2009: Rate cuts during the financial crisis. - 2015: Cuts after oil prices collapsed. - 2020: Emergency cuts during the pandemic.

But this time, the context is different. The economy isn’t in a crisis—it’s soft landing. Inflation is down, unemployment is stable (around 5.5%), and GDP growth is modest but positive.

“The Bank of Canada is walking a fine line—easing without reigniting inflation,” said one economist, echoing a sentiment shared across financial institutions.

RBC’s own Capital Markets division has been closely watching these trends. In recent earnings previews, RBC analysts noted that consumer resilience and labor market strength are key factors supporting a cautious rate cut cycle.

Immediate Effects: Who Benefits, Who Doesn’t

The rate cut has immediate, real-world impacts:

✅ Borrowers Win

• Variable-rate mortgage holders: Payments drop automatically.
• HELOC users: Cheaper access to home equity.
• Business owners: Lower costs for operating lines and expansion loans.
• First-time homebuyers: More purchasing power, especially in competitive markets.

“This cut could bring some relief to overleveraged households,” said a mortgage advisor in Calgary. “But it’s not a free pass—affordability is still tight in major cities.”

⚠️ Savers Lose

• Fixed deposits, GICs, and savings accounts: Banks are expected to lower interest rates on these products soon.
• Retirees and fixed-income earners: Lower returns on safe investments.

🏦 Banks Face Mixed Results

• RBC, TD, and others will see lower lending income, but could benefit from increased loan demand as borrowing becomes cheaper.
• Mortgage originations may rise, especially for variable-rate products, which are now more attractive than fixed rates.

According to Canadian Mortgage Trends, variable-rate mortgages have seen a 15% increase in applications in the week following the rate cut.

📉 Investors React

• The TSX saw a modest rally, particularly in rate-sensitive sectors like real estate and utilities.
• RBC’s stock rose 1.2% on the news