Major Canadian banks are not passing along the Bank of Canada's half-point cut to the lending rate and instead are cutting their prime rates by just a quarter of a percentage point.
The move comes as a surprise, as the big banks normally always follow the central bank's cuts, even if they say they can't afford it.
The Bank of Canada slashed its key lending rate to 2.5 per cent Wednesday, one of many central banks making the move around the world.
Toronto-Dominion Bank was the first institution in Canada to make a cut Wednesday, cutting their prime rate to 4.5 per cent. The other major Canadian banks followed throughout the day.
The snub of the federal government has not gone unnoticed.
Finance Minister Jim Flaherty has called for a news conference early Thursday morning, where it is believed he will take questions to address concerns about the economy.
Sherry Cooper, BMO Capital Markets chief economist, said that the big banks simply couldn't afford the cut.
"We're all hording cash and as soon as that happens there is very little that the central bank or government can do directly," Cooper told 麻豆影视.
She added it would take a year to 18 months before the effects of the rate cuts could be seen.
The United States, the United Kingdom, Europe, Switzerland, Sweden, China and Hong Kong also cut their lending rates Wednesday trying to bolster the wheezing global economy.
The unprecedented move came as markets around the world struggled to navigate the turbulent global economy, with many offering bailouts to try and keep their economies going.
Oliver Bernard, the International Monetary Fund's Chief Economist, said that with the global moves to cut rates the "risk of a Great Depression is nearly nil."
Markets close up
The Toronto stock market managed to close up 225.84 points Wednesday in its first positive showing in five days.
Canada's S&P/TSX finished the day at 10,055.39 points. On Tuesday, the TSX had lost more than 400 points and on Monday, it lost 573 points, slipping below 10,000 for the first time in three years.
Despite gains made by the TSX on Wednesday, New York's Dow Jones industrial index finished down 189.01 points to 9,258.1. The Nasdaq composite index lost 14.55 points to 1,740.33, and the S&P 500 index dropped 11.29 points to 984.94.
BNN's Michael Kane said the rate cut move fits with efforts by many nations to shore up their banking institutions.
England, for example, partly nationalized its banks on Wednesday to help provide stability. The British government's efforts cost $87.5 billion.
"The event that occurred here today with the co-ordinated interest rate cut should support what the Bank of England did by buying into its banks to stabilize that situation, and other governments are making similar moves as well," Kane said.
However, he pointed out that inter-bank lending is still at a virtual standstill, and the interest rate for those loans has not yet been adjusted.
Adam Taylor of the Canadian Taxpayers Federation said Wednesday's interest cut shows nations are now recognizing they need to combine forces to solve the problem.
"I think it's recognition that the global economy needs all the countries in the global economy to come together, to work together when they need to, and this is a good move and one that should allay some of the fears that are out there," he told CTV's Canada AM.
Earlier Wednesday, Flaherty said the Bank of Canada has already taken steps to protect the economy, such as boosting the availability of funding to banks and widening the range of collateral it will accept -- as well as the co-ordinated interest rate cut announced on Wednesday.
"This significant action will provide timely support for the Canadian economy," Flaherty said.
"I welcome the strong international co-ordination that central banks have displayed throughout the financial crisis, most clearly expressed in the co-ordinated rate cut today. This same commitment to co-operation needs to be reflected by finance ministers."
Early Wednesday, markets in Europe tumbled amid ongoing fears over credit markets.
And in Asia, the Japanese Nikkei had its worse day since the stock market crashed in 1987.
