Borrowing Costs Set to Rise Amid Higher Input Costs

The cost of borrowing is expected to rise due to higher input and equipment costs, according to Graeme Crosbie, senior economist at Farm Credit Canada. The Bank of Canada's overnight rate has been stagnant at 2.25% for a while, but financial markets are now pricing in a rate hike as early as this December.

Crosbie noted that short-term lending rates are heavily influenced by the Bank of Canada's overnight rate, and that long-term rates, such as Government of Canada bonds ranging from two to 10 years, are more heavily influenced by U.S. bond market dynamics, inflation expectations, and gross domestic product growth.

The trend of rising interest rates has been ongoing since 2021, with rates climbing steadily in countries such as the United States, the United Kingdom, and Japan. Crosbie predicts that this trend will continue, saying 'Those are going to continue to grind higher and higher and higher in the short-term.'