The Globe and Mail reports in its Monday edition that the Bank of Canada's next tightening cycle will see interest rates climb above the previous peak for the first time in decades.
A Reuters dispatch to The Globe reports that in four major tightening cycles since the early 1990s, the BOC's key interest rate has peaked lower than the preceding cycle's end point. Reuters expects it to change in the next cycle.
Ottawa is spending $101-billion, about 5 per cent of gross domestic product, to stimulate the economy over three years, while U.S. President Joe Biden has proposed trillions of dollars of infrastructure spending.
A higher end point for rate hikes could give the BOC more firepower to fight the next downturn. It could also spur changes to the economy, raising the incentive to save and invest rather than borrow. Canadians have borrowed heavily in recent years.
The BOC has signalled it could begin raising rates from a record low of 0.25 per cent in the second half of 2022, well ahead of the 2023 projection from the U.S. Federal Reserve. Swap market data put the peak of the expected tightening cycle, or the terminal rate, at about 2 per cent in five years, above the previous peak of 1.75 per cent.
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