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BOC to Turn More Upbeat about Economic Recovery, While Caution about Uncertainty and Keep Monetary Policy Unchanged.

At the BOC meeting this week, we expect new Governor Tiff Macklem to continue Stephen Poloz’s legacy and leave the policy rate unchanged at 0.25%, the effective lower bound. The asset purchases programs (QE) will also be maintained. Canada’s reopening since the June meeting has largely been smooth. Economic data released since then have also been encouraging. We expect policymakers to sound more optimistic about economic developments that the June meeting. Yet, they would also remain cautious, warning of the highly uncertain outlook of the coronavirus pandemic.

As the increase in coronavirus cases has shown signs of moderating, provinces and territories in Canada are gradually reopening economic activities. The Ivey/ Markit PMI report shows that economic activities returned to expansion in June. The index jumped to a seasonally adjusted 58.2 in June, from 39.1 a month ago. This marks the highest level since November 2019. Most sub-indices including employment, supplier deliveries and inventories also improved significantly. On a separate report, the Markit manufacturing PMI improved to 47.8 in June, from 40.6. While staying in the negative territory, the survey shows “vastly improved situation in comparison to that seen over the previous three months”.

The job market also improved. In June, the number of payrolls soared +852.9K, beating consensus of +700K increase and the +289.6K addition a month ago. Bo