Bank of Canada to Break Sequence of Lower Terminal Rates as Governments Splurge

With fiscal spending booming and households flush with cash, investors are betting that the Bank of Canada's next tightening cycle, expected to begin in 2022, will result in interest rates climbing above the previous peak for the first time in decades, Reuters reported. In four major tightening cycles since the early 1990s, the Bank of Canada's key interest rate has peaked at a level that was lower than the preceding endpoint. But that 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 C$101 billion ($81 billion), about 5% 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% of its exports to the United States. Read more.
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