Canada eyes longer-term debt as servicing costs drop with lower rates: source

OTTAWA (Reuters) – Canada is considering issuing longer-term debt to take advantage of low interest rates and expects servicing costs to be lower this fiscal year than the government forecast. last year despite billions in emergency spending due to COVID-19, a government says the source.

FILE PHOTO: Canada’s Finance Minister Bill Morneau speaks in the House of Commons as lawmakers meet to give the government the power to inject billions of dollars in emergency cash to help individuals and businesses weather the economic crisis caused by the coronavirus disease (COVID-19) outbreak, on Parliament Hill in Ottawa, Ontario, Canada April 11, 2020. REUTERS/Blair Gable/File Photo

Canadian Finance Minister Bill Morneau will release a “fiscal snapshot” on Wednesday outlining the current balance sheet and forecast for growth.

Before the snapshot was released, Prime Minister Justin Trudeau noted that low interest rates make future spending more sustainable.

“Now is not and has not been a time for belt-tightening and austerity,” Trudeau told reporters. “Historically low interest rates mean manageable borrowing costs as we continue to invest in Canadians and the economy.

In December, Canada said it expected public debt charges to rise to C$23.7 billion ($17.4 billion) in the 2020-21 fiscal year. from April 1. But a government source said the new estimate would be lower despite a much higher deficit than it had been. expected.

Canada’s Independent Parliamentary Budget Officer has said the federal deficit is likely to soar to C$256 billion ($188 billion) in 2020-21, mostly due to spending to soften the blow from pandemic shutdowns, for example. compared to a deficit of 21.8 Canadian dollars in 2019-2020. billion reported in May.

The Globe and Mail, citing two senior officials, reported that Morneau was forecasting a deficit of more than C$300 billion on Wednesday.

“We took on debt so Canadians wouldn’t have to,” Trudeau said at a news conference.

The Bank of Canada cut its policy rate in March by a total of 1.5 percentage points to 0.25%. He said he has no plans to cut rates further.

Canada lost one of its coveted triple-A ratings in June when Fitch first downgraded it, citing the billions of dollars in emergency aid Ottawa has spent to help offset the downturn caused by the COVID-19 closures.

Standard & Poor’s, Moody’s and DBRS still give the highest rating to Canadian debt.

Issuing longer-term debt “makes a lot of sense,” said Brett House, deputy chief economist at Scotiabank.

“It’s a great idea to skew more issuance toward longer-term borrowing and…I think there’s still appetite,” said Doug Porter, chief economist at BMO Capital Markets. “So I would strongly encourage them to take advantage of these exceptionally low long-term yields.”

Reporting by Steve Scherer; Additional reporting by Kesley Johnson; Editing by Peter Cooney and Jonathan Oatis

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