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“Canada looks to have firmly transitioned to its recovery phase; we look for industry-level GDP to rise 3.9% in May,” TD Securities analysts said previewing Friday’s GDP report.

Key quotes

“Thanks to the Bank of Canada’s conditional forward guidance, better economic performance in the middle part of 2020 will not do much to change near-term monetary policy expectations, as almost any plausible scenario suggests a significant amount of slack will persist into 2021. Recent data does however make more accommodative policy (i.e., more credit easing or yield curve control) less likely.”

“A shallower recession in 2020 could have significant implications for monetary policy in 2021 and 2022 however; because the BoC has tied the overnight rate to the closing of the output gap, the eventual timing of rate hikes will depend crucially on both growth rates and assumptions about economic capacity.”

“We are penciling rate hikes in 2022H2, but plausible scenarios can be constructed arguing for tightening as early as mid-2021 or as late as 2024. We eagerly await the October Monetary Policy Report for more insight on the Bank’s treatment of potential output.”