Record U.S. interest rates forced Canadian rates upward yesterday to unprecedented levels as the Bank of Canada moved its trendsetting "bank rate" to 17.36 percent from 16.14 percent a week ago.
The bank rate is the Canadian equivalent of the U.S. Federal Reserve rate. The bank rate is set at a quarter of a point higher than the average yield on 91-day Canadian government treasury bills at the weekly bill auction.
The central bank move triggered 1.25 percent increases in chartered bank prime loan rates. Canadian banks are charging their best-risk commercial customers 18.25 percent, up from 17 percent last week.
The U.S. prime reached a record 21 percent this week. The Canadian prime is three-quarters of a point higher than the record 17.5 percent reached earlier this year.
The boost in Canadian rates turned the Canadian dollar sharply higher in Toronto foreign exchange trading. The dollar traded as low as 82.5 cents in U.S. fund markets this week. Yesterday the Canadian dollar finished at 83.45 cents.
Earlier this week, Bank of Canada governor Gerald Bouey got a grilling from provincial finance ministers, many of whom were critical of the high level of interest rates established by the bank in an effort to shore up a weak Canadian dollar. Despite Bouey's efforts, the dollar in recent days had traded at its lowest level since the early 1930s.