The Financial Post reports in its Tuesday edition that investors are betting the Bank of Canada's next tightening cycle in early 2022, will result in interest rates climbing above the previous peak for the first time in decades.
A Reuters dispatch to the Post reports that in four major tightening cycles since the early 1990s, the BOC's key interest rate has peaked at a level that was lower than the preceding endpoint.
That, however, could change in the next cycle, as historic levels of government spending globally raise prospects of an economic recovery from the COVID-19 crisis that is more robust than previous recoveries.
The Canadian government is spending $101-billion, about 5 per cent of GDP, to stimulate the economy over three years, while U.S. President Joe Biden has proposed trillions of dollars of infrastructure spending. Canada sends about 75 per cent of its exports to the U.S.
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 to participate in one of the world's hottest housing markets.
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