The Bank of Canada will be attentively examining this data because it is the last significant economic data release before the interest rate announcement on September 6.
The head of Canada and Mexico economics at Bank of America Merrill Lynch, Carlos Capistran, told Reuters that “we think this print is very important for the BoC’s (September) decision.” The BoC has not ruled out further hikes and is currently in a data-dependent stance.
Despite a recent inflation report that came in hotter than anticipated, economists anticipate a downturn in the economy in the second quarter that may encourage the central bank to postpone raising interest rates.
After July’s consumer price index skyrocketed to 3.3%, exceeding the Bank of Canada’s goal range of between one and three percent, betting on another increase in September increased earlier this month.
The preliminary estimate for GDP growth in the second quarter, which was 3.1%, was given by analysts at the Royal Bank of Canada, but they expect it to be even lower, at 0.5%. Both fall below the 1.5% prediction made by the Bank of Canada.
According to RBC analysts Nathan Janzen and Claire Fan, “Policy makers are clearly prepared to respond with additional interest rate hikes if momentum in the economy doesn’t weaken enough to ensure inflation pressures will trend lower.”
However, we anticipate that there will be sufficient evidence of a downturn in demand by this point for the BoC to skip another increase in the overnight rate in September.
According to analysts, some of the economic headwinds in recent months are temporary, like the wildfires still burning in Canada.
