TD Securities’ Robert Both and Emma Lawrence note that stronger-than-expected Canadian Gross Domestic Product (GDP) data support a brighter growth outlook but do not materially change their Bank of Canada (BoC) view. They highlight that Q2 GDP is tracking above BoC projections, yet still expect policy rates to remain unchanged through 2026 before a gradual hiking cycle begins in early 2027.
BoC seen on extended 2026 hold
“The Canadian growth outlook looks a little brighter after industry-level GDP rose by 0.3% m/m in May (0.34% unrounded) for an upside surprise against expectations (TD & market) for a 0.2% increase and flash estimates for GDP to rise by 0.1%.”
“This report leaves Q2 GDP tracking at 3.4%, above BoC projections, but we look for the Bank to stay patient before hiking rates in 2027.”
“While this report bodes well for the near-term growth outlook, the Bank of Canada can remain patient going forward.”
“The upside surprise on May GDP should give the Bank some added confidence that the economy is adjusting this environment of heightened uncertainty, but we continue to look for the Bank to stay on hold through 2026 as excess supply is slowly absorbed before hiking to 2.75% in early 2027.”
“We continue to see the BoC staying on hold for 2026, and imagine it would feel quite comfortable with that decision after today’s print.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
