Canada’s central bank has signaled plans to race ahead with a series of oversized hikes to curb inflation, upping the risk of plunging the economy into a recession, say, economists, though worth it if it keeps rapid price rises from becoming entrenched.
The Bank of Canada last week raised its policy interest rate to 1.5% from 1.0%, its second consecutive 50-basis-point hike.
It said it was ready to act “more forcefully” if needed to fend off “galloping inflation,” already at a 31-year high.
The housing market, a key driver of Canada’s economy, has cooled sharply from February’s peak, as rate hikes cut into buying power.
Bank of Canada’s Beaudry: If you do a little bit too little and you allow inflation to keep going.
If you do too much, you might kind of bring the economy into a recession.
Money markets are betting the Bank of Canada will raise its policy rate to 3.25% by the end of this year.
The Bank may be willing to risk a hard landing if it keeps consumer expectations in hand, economists said.
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