2 banks pass on only part of Canada's rate cut

One of Canada's biggest mortgage lenders, TD Canada Trust, was first off the mark, saying it will make a smaller quarter point cut to its prime lending rate, which now stands at 4.75 percent and serves as a benchmark for consumer loans, lines of credit and some mortgages.

CIBC followed, saying it would cut its prime by a quarter point as well to 4.5 percent from 4.75 percent, effective Thursday.

Earlier Wednesday, the Bank of Canada and other central banks cut interest rates by half a percentage point in a coordinated effort to stimulate lending and economic growth.

The central banks had hoped the full half point cut would be passed down to consumers.

For several years now Canada's big banks, including TD, have moved their prime rates up or down in lock step with the Bank of Canada's key short-term interest rates.

"Continuing market turmoil has steadily driven up the cost of borrowing for financial institutions," Tim Hockey, president and CEO of TD Canada Trust, said in a statement.

"This makes it challenging to match the Bank of Canada rate cut at this time. We recognize the efforts the Bank of Canada is making and, despite the fact that our cost of funds remains high, we have decided to reduce our rate by (a quarter point). We see this as a balanced move in managing our funds and passing along the intended benefits to our customers."

Earlier Wednesday, Canadian Finance Minister Jim Flaherty said he wouldn't advise Canada's banking system to decide whether to fully pass Wednesday's interest rate cut onto consumers.

"They respond to the steps taken by the Bank of Canada as they see fit," he said.