Against the background of high inflation rates, the central bank of Canada (BOC) is seen to be choosing to implement aggressive rate increases despite the risk of economic recession.
The basis was presented by a group of analysts who discussed the economic outlook as well as the risk of a Canadian recession.
For context, Canada's inflation rate jumped to a 4-decade high of 8.1% in June and is expected to decline further from July's record of 7.6%.
However, in forcing a decrease to the inflation rate, the BOC had to implement an aggressive rate increase of 3.25% so far.
For information, the BOC has raised the interest rate by 300 basis points in a period of 6 months to bring the figure to 3.25% which is the highest level in 14 years.
On those factors, BMO Capital Markets analyst Doug Porter described the weak growth behind the retraction of house prices and the reduction of the supply chain will help limit inflation.
However, it will bring bigger problems in the 4th quarter of 2023.
Nathan Janzen from the Royal Bank of Canada added that the aggressive increase will lead to a recession next year.
Also supporting were economists from Desjardins Group and Oxford who confirmed that Canada could face a recession based on aggressive rate hikes in controlling inflation.
