Canada’s biggest banks are lowering their prime lending rates, nearly a week after a surprise rate cut by the Bank of Canada.

Royal Bank of Canada said Tuesday it decreased its prime lending rate to 2.85 per cent from 3 per cent.

The move was quickly matched by the Bank of Montreal, TD Canada Trust, CIBC and Scotiabank. The rate changes take effect on Wednesday.

The Bank of Canada cut its key overnight rate by one-quarter of a percentage point to 0.75 per cent on Jan. 21, as “insurance” to soften the impact that collapsing oil prices will have on the Canadian economy.

Prices for crude oil have been cut in half since last year and federal and provincial governments are expected to lose billions in revenues. The central bank’s rate cut will make it cheaper for businesses to borrow, and provide a break to consumers, particularly in western Canada, who may be facing unemployment.

But there are also worries that lower interest rates will prompt already heavily-indebted consumers to borrow more, and send a surge through Toronto’s heady real estate market.

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Spin Mortgage co-founder Steve Pipkey says the prime lending rate offered by Canadian banks usually moves in lockstep wit the central bank’s overnight lending rate and it’s unusual for the bank to only partially pass on the savings to consumers.

Pipkey told The Canadian Press that the banks are likely trying to protect their lending margins.

RBC called its move “a balanced approach which reflects our actual cost of funds and helps clients save money on products such as variable-rate mortgages, lines of credit and floating-rate loans,” an RBC spokesperson said in an email to The Star.

“Our decision was driven by a number of factors, including the bank’s wholesale funding costs, the competitive, operating and macroeconomic environments,” spokesperson Wojtek Dabrowski wrote.

The Bank of Canada’s recent rate decision was also a factor, RBC said.

TD said its move “reflects our commitment to review our rates on an ongoing basis and offer competitive options to meet our customers' needs.”

Robert McLister, the founder of RateSpy.com, says Canada’s biggest banks are now offering five-year fixed rate mortgages at an estimated 2.84 per cent to their most qualified borrowers.

RateSpy estimates the rate at which banks will lend to their most credit-worthy borrowers, which is much lower than the rates banks advertise on their websites.

The site revised its estimate down from 2.89 per cent on Monday, after Royal Bank cut its posted rate for five-year fixed mortgages over the weekend by 10 basis points to 4.84 per cent.

Fixed-rate mortgages tend to rise and fall with bond yields. Yields on five-year government bonds plunged the day after the Bank of Canada cut its overnight rate.

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Phil Soper, president of realtor Royal LePage, says the lenders could be waiting until spring, the peak real estate season, before cutting fixed-rate mortgages more aggressively.

“Announcing a discount on their mortgage rates right now would be like announcing Boxing Day prices in November,” Soper told Canadian Press.

With files from The Star’s wire services

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