RBC’s Prime Rate Cut Might Change The Case For Investing In Royal Bank of Canada (TSX:RY)

• RBC Royal Bank recently decreased its prime rate by 25 basis points, lowering it from 4.70% to 4.45%, a move effective October 30, 2025, that directly adjusts lending and borrowing costs for customers.
• This shift in prime rate highlights RBC’s responsiveness to evolving monetary conditions and underscores how interest rate decisions can materially influence banking sector profitability and customer behavior.
• Let's examine how RBC's recent prime rate reduction could impact the company's investment outlook and long-term earnings drivers.

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Royal Bank of Canada Investment Narrative Recap

Being an RBC shareholder means believing in its ability to adapt to changing interest rate environments, deliver stable earnings, and manage risk across diversified banking operations. The recent prime rate drop, while indicative of RBC's responsiveness, is unlikely to materially shift the main short-term catalyst for the stock, which remains driven by credit quality trends and core banking profitability. The biggest risk continues to be elevated provisions for credit losses as Canadian economic factors and delinquencies persist.

Among recent announcements, RBC’s planned redemption of $300 million in preferred shares (Series BH and BI) stands out, reflecting active capital management that may offer more flexibility to support lending activity and dividend stability. While this move does not directly offset macroeconomic headwinds, it aligns with the core catalyst of disciplined capital optimization that supports shareholder returns and mitigates earnings pressure from a softer lending environment.

However, it is important to remember that a lower prime rate is not the only factor investors should be aware of, especially when considering...

Read the full narrative on Royal Bank of Canada (it's free!)

Royal Bank of Canada's narrative projects CA$68.6 billion revenue and CA$20.5 billion earnings by 2028. This requires 4.4% yearly revenue growth and an earnings increase of CA$1.8 billion from the current earnings of CA$18.7 billion.

Uncover how Royal Bank of Canada's forecasts yield a CA$211.07 fair value, a 3% upside to its current price.

Exploring Other Perspectives

Simply Wall St Community members estimate RBC’s fair value anywhere from C$185 to C$281.64, with 8 unique perspectives informing this wide band. The range of views underscores how concerns about credit losses and economic uncertainty can shape markedly different outlooks on RBC’s future performance, inviting you to compare multiple scenarios for the stock’s prospects.

Explore 8 other fair value estimates on Royal Bank of Canada - why the stock might be worth 10% less than the current price!

Build Your Own Royal Bank of Canada Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Royal Bank of Canada research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.
• Our free Royal Bank of Canada research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Royal Bank of Canada's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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