Posthaste: Interest rates among the shocks that could pressure the Nov. 5 federal budget’s bottom line

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Please try againRising rates pressure all borrowers, including the federal government, Cynthia Leach, deputy chief economist at Royal Bank of Canada, said.“Higher rates and larger deficits in Budget 2026 will push public debt charges higher still as a share of revenue versus the spring update’s upward path,” she said in a note on Oct. 26.She pointed out the last budget estimated that a 100-basis-point increase over a sustained period would increase the deficit by $8 billion over four years.Federal debt charges rose by 3.3 per cent in April and May from the same period a year ago to $9.9 billion on higher interest rates, the Department of Finance said in its fiscal monitor released in September.Randall Bartlett, deputy chief economist, and LJ Valencia, an economist, at Desjardins Group said if bond interest rates remain at their current levels over the five-year period of the Spring Economic Update, that could cost Canadian coffers $3 billion on average starting in fiscal year 2028.This advertisement has not loaded yet, but your article continues below.“Increases in short- and long-term interest rates from here would exacerbate the drag on the federal government’s bottom line,” they said in a report on Oct. 26.An increase of 50 basis points to Desjardins’ forecast for long-term rates, which would lift them above four per cent, could trigger a “sustained” increase in the ratio of federal debt to gross domestic product starting in 2027.“A permanent increase in long-term interest rates beyond that would be even more damaging,” they said.Unlike huge debtors such as France and the United States, global investors are likely to cut Canada some budget slack on lower debt and deficits.“This is not a free pass,” Leach said, adding the credibility and sustainability of the costs of Canada’s plans to expand and diversify the economy, which include many expensive public projects, are key to protecting the country’s triple A credit rating.Bartlett and Valencia expect the new budget to be heavy on forecasts for spending and tax cuts and deductions, but Ottawa should grant itself some wiggle room as the shocks from “sharply higher and rising interest rates” are real.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.“Budget 2026 should clarify the costing and financing of spending and revenue measures announced so far, and demonstrate the fiscal framework’s robustness to adverse shocks,” they said. Sign up here to get Posthaste delivered straight to your inbox.Truckers and farmers paying record prices for diesel this fall have been asking a reasonable question: if Canada has so much oil, why can’t it make more of its own fuel?The numbers tell a more complicated story. Canada produced a record 5.35 million barrels of crude a day in 2025, and roughly four million barrels a day went to the United States.Canada’s 16 refineries, on the other hand, processed about 1.6 million barrels a day, running at 90 per cent of capacity, according to the Canada Energy Regulator.That is more than enough to keep Canadians moving on the roads. The country burns roughly 830,000 barrels of gasoline a day, and the industry’s regulator says Canadian refineries produce most of the gasoline, diesel and jet fuel that Canadians consume.“But where it comes from depends on whether you’re in B.C. or Ontario or Atlantic Canada,” said Patrick O’Rourke, managing director, institutional equity research at ATB Capital Markets. — James Rose, Financial PostRead the full story here.This advertisement has not loaded yet, but your article continues below.Bank of Canada announces its interest rate decision at 9:45 a.m. ETToday’s Data: U.S. mortgage applications, advanced goods trade balance, retail and wholesale inventories.Earnings: Tamarack Valley Energy Ltd., Canada Packers Inc., Amerigo Resources Ltd., Bausach + Lomb Corp., Whitecap Recources Inc., Agnico Eagle Mines Ltd., Kinross Gold Corp., First Quantum Minerals Ltd., Cogeco Inc., Cogeco Communications Inc., Eldorado Gold Crop., Canadian Pacific Kansas City Ltd., Morguard REIT, Allied Properties REIT, Alamos Gold Inc., GFL Environmental Inc., Algoma Steel Group Inc., Bausch Health Cos Inc., Primaris REIT, Acadian Timber Corp., West Fraser Timber Ltd., Co., Brookfield Residential Properties Inc.Tony and Rebecca are recent transplants to Ontario from Alberta. Parents to a preschooler, they moved for their careers and have been renting while they get a better feel for their new home in the Greater Toronto Area. Rebecca wants to buy, while Tony wants to keep renting, given the GTA’s high real estate prices and carrying costs of home ownership. They are looking for advice on how to handle the housing calculus in the GTA. Keep reading Family Finance here to find out more.This advertisement has not loaded yet, but your article continues below.The FP Atlantic Economic Report takes you behind the scenes of the business world in Atlantic Canada. We’ll bring you insights from CEOs, government leaders, investors and economists on what’s making the regional economy tick and where it’s heading next. Sign up hereAre you worried about having enough for retirement? Do you need to adjust your portfolio? Are you starting out or making a change and wondering how to build wealth? Are you trying to make ends meet? Drop us a line at wealth@postmedia.com with your contact info and the gist of your problem and we’ll find some experts to help you out while writing a Family Finance story about it (we’ll keep your name out of it, of course).McLister on mortgagesWant to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Plus check his mortgage rate page for Canada’s lowest national mortgage rates, updated daily.Financial Post on YouTubeVisit the Financial Post’s YouTube channel for interviews with Canada’s leading experts in business, economics, housing, the energy sector and more.Today’s Posthaste was written by Gigi Suhanic with additional reporting from Financial Post staff and Bloomberg.Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? 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