Public Debt Charges Calculator Update

We have updated the Public Debt Charges (PDC) calculator to reflect new interest rate projections from our October Economic and Fiscal Outlook (EFO). This analysis compares effective interest rate projections before and after the update, as well as their impact on public debt charges.

Compared to our March 2022 EFO, effective interest rates on new debt are now projected to be significantly higher in the short term. This reflects increases in the Bank of Canada’s policy rate since March 2022, with the policy rate reaching 4.0 per cent by the end of 2022 based on our October EFO. In our EFO, we projected the Bank to lower its policy rate to its neutral level of 2.5 per cent (revised up by 25 basis points from our March projection) by the end of 2024 as inflation returns to target. Consequently, we projected both short-and long-term interest rates to temporarily increase above their ultimate (or steady-state) levels until 2023 and then gradually decline.

As a result of the higher interest rates, all else equal, the PDC calculator would now estimate higher public debt charges on additional borrowing (either due to higher spending or measures that lower revenues). For example, in the updated version, a $1 billion deficit-financed increase in spending (or revenue reduction) in each fiscal year would, on average, increase public debt charges by $16.9 million (22 per cent) compared to the previous version (Figure 2). Cumulatively, by the end of 2027-28 public debt charges would be $84.3 million higher, compared to the previous version (Figure 3).