According to a new study by the Canadian Center for Policy Alternatives (CCPA), the Bank of Canada’s strategy of rapidly raising its key interest rate in an effort to combat soaring inflation will likely trigger a recession.
The research institute says that if the central bank aims to bring inflation back from 7.7% to its 2% target by rapidly raising rates, it could cause significant “collateral damage”, including 850,000 losses of jobs.
He adds that the central bank has had a zero percent success rate with this approach, noting that a 5.7 percent drop in the inflation rate has occurred three times in the past 60 years, each times after sharp rate hikes and accompanied by a recession. .
The CCPA says it’s time for a new policy on inflation.
He indicates that the Bank of Canada could potentially reduce the risk of sending the economy into recession if it adjusts its inflation target to 4%.
The study comes a day after the Bank of Canada released two quarterly surveys that found consumers and businesses expect inflation to remain high for several years.
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