Interest Rates in Canada

Extract

The eight years' interval from 1929 to 1937 was one of the most eventful periods in modern economic history. In common with other indices of economic conditions, rates of interest returns were affected by the world-wide collapse in the years immediately after 1929, and by the recovery movement which has persisted from about 1933. Among Canadian interest rates the outstanding development was the extensive decline after 1932 in the return obtainable from most of the important types of loan investment. Two significant features of this decline were, first, the decreases in certain rates which had been relatively stable for several decades and, second, the unprecedented divergence between rates of return on short and long term bonds of high grade. These developments are broadly illustrated in table I and in a chart accompanying this article.

The remarkable changes in recent years in rates of interest returns are primarily attributable to the influence of unparalleled “easy money conditions” induced in the first instance by the economic collapse and later intensified by governmental policies of an emergency nature. These were pursued in Canada and most other countries; and were designed to modify some phases of the disequilibria produced by the depression and to promote recovery. Data presented in this paper will trace the behaviour of interest rates in Canada since 1929 as indicated by returns obtainable from time to time on several types of loan investment which are popular with institutional and private investors. Limitation of space prevents an exhaustive analysis of this subject; and the scope of the two papers to follow renders unnecessary anything but incidental reference to the causes of changes in rates.