Interest Rate Increases Would Have “Tremendous Impact” on Provincial Budget: Coady - VOCM

Rising interest rates will have a “tremendous impact” on the province’s overall budget.

Finance Minister Siobhan Coady was reacting to word that the Bank of Canada will increase its benchmark interest rate by half a percentage point to 1.5 per cent tomorrow.

The measure, being taken to cool an overheated Canadian economy, will have an impact on those who carry mortgages and debt.

(Bank of Canada via Google Maps.)

That includes the provincial government, which is $17-billion in debt. The province is borrowing $2.7 billion dollars this year. Minister Coady says government has been doing what it can to leverage the lowest borrowing costs. The province set aside $1-billion in borrowing costs in this year’s budget.

The province is borrowing at “well over” 3 per cent in the 30-year range, but exact overall impact is difficult to say, says Coady.

“We borrow in different tranches,” says the Minister, “sometimes we borrow at 60-90 days, sometimes we borrow at 5 year, 10 year, and 30 year intervals.” She says that is done so that they aren’t stuck with all their debt in either long-term or short-term rates. The latest interest rate increase however will have “a tremendous impact on our overall budget.”

Minerals Boom and Labour Demand Among Factors that Could Prevent Recession in NL, says Investment Advisor

A local investment advisor says there are a number of key factors that could prevent the province from tipping into recession once interest rates increase again on Wednesday.

The Bank of Canada is expected to increase its benchmark rate by half a percentage point, and the major banks will likely follow suit with increases to their lending rates.

Larry Short, Senior Investment Advisor with Short Financial, a branch of IA Private Wealth in St. John’s, says while there are concerns the rate hike could tip the country into an economic recession, a number of factors are working in our favour.

He cites the current minerals boom and the demand for labour as examples that differ from previous recession periods.

He says recessions tend to be a year-and-a-half to two years out from when the central bank starts to raise its key interest rate, “so I wouldn’t be yet as alarmed as some commentators have been.”

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2022-05-31 17:23:00Z
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