After holding rates steady for five months, the central bank went against economists’ expectations and raised interest rates a quarter of a percentage point to 4.75 per cent on Wednesday in response to strong economic data, including a recent uptick in inflation.
John Manley, a former federal finance minister and now senior advisor at Bennett Jones, told BNN Bloomberg that as the Bank of Canada’s battle to bring inflation back to two per cent continues, governments should keep in mind that “every time there has been a sharp decrease in inflation engineered by monetary policy, there has been a recession.”
“In the minds of the politicians, they‘ve got to start thinking now, ‘How do we make sure if there’s a recession coming that it’s a relatively soft landing,” Manley said in a television interview on Wednesday.Manley said he anticipates some economic pain such as job losses ahead.
“This is partly a numbers game. It's partly data driven, but it's also a big psychological game,” he said. “What the Bank of Canada and the other central banks are trying to do is break that inflationary psychology and to convince businesses and consumers that they're going to be living with a slower economy and a higher interest rate environment for the time to come, so that they adjust their expectations,” he said. “We’re seeing today how serious the Bank of Canada is in that respect.”
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