The Bank of Canada kept interest rates unchanged for the first time in nine meetings, saying it’s prepared to hike again if the economy veers off its forecast course.

Policymakers led by Governor Tiff Macklem made good on a January pledge to hold the benchmark overnight rate at 4.5 per cent on Wednesday, the first pause among major central banks that was expected by both markets and economists. Officials kept the door open to further rate increases, however, reiterating that they’re willing to raise borrowing costs again if necessary.

The stay-the-course message suggests officials are confident their aggressive tightening over the past year will keep dragging on economic growth and bring inflation to heel. That’s at odds with the U.S. Federal Reserve, which is signaling further hikes to come.

 “The absence of any stated concern over a larger gap to U.S. rates, or the resultant recent weakening in the Canadian dollar, adds weight to our view that rates can stay on hold north of the border,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, said in a report to investors.

The loonie sank as low as C$1.3795 per US dollar, the lowest since Nov. 3. The yield on benchmark two-year government bonds declined more than 2.5 basis points to 4.301 per cent at 11:52 a.m. in Ottawa.

The Bank of Canada’s communications also highlighted a “very tight” labor market, and said inflation expectations still “need to come down further” for inflation to get back to 2 per cent.

But taken as a whole, Macklem and his officials see the economy evolving as expected in their January forecasts, an important condition to holding steady.

The latest data remain “in line with the bank’s expectation that CPI inflation will come down to around 3 per cent in the middle of this year,” policymakers said in the statement.

“This is really the game for the next several months. How quickly is this economy going to slow down? Is the labor market going to follow it, and of course, is inflation going to follow suit?” Frances Donald, global chief economist for Manulife Investment Management, said on BNN Bloomberg Television.

Domestic data has been mixed since the pause was announced.

Output stalled at the end of last year as businesses pared down inventories, though a rebound in consumption and household spending points to resilience among Canadian consumers, despite their large debts.

“With weak economic growth for the next couple of quarters, pressures in product and labor markets are expected to ease,” the bank said in the statement, adding that officials still see evidence their aggressive increases to interest rates are working to cool demand. “Restrictive monetary policy continues to weigh on household spending.”

Before the decision, economists surveyed by Bloomberg saw Macklem holding rates steady through most of this year. Traders are now fully pricing in another quarter-percentage-point hike at some point in 2023.

The Bank of Canada held interest rates steady on March 8, saying the economy is evolving in line with its forecasts.

On Tuesday, Fed Chair Jerome Powell told lawmakers rates will likely have to go higher than previously anticipated. Bets on the U.S. central bank’s next move then tilted toward a half-percentage-point hike, instead of a quarter-point, with investors seeing the Fed funds rate climbing to 5.5 per cent or higher. In further testimony Wednesday, Powell stressed that policymakers haven’t yet made up their minds on the size of the next increase. 

That divergence is expected to start testing Macklem’s resolve — economists say the Bank of Canada can only comfortably lag the policy rate of its powerful neighbor by about 100 basis points. Wednesday’s statement removed reference to a stable Canadian currency, replacing it with an acknowledgment of recent U.S. dollar strength.

For some analysts, the lack of reiterating specific language on a pause suggests the Bank of Canada may be ready to leave the sidelines and start hiking as early as April.

“Adjustments in the guidance and in the characterization of the economic backdrop lead us to see further hikes as more likely than not,” Veronica Clark, an economist with Citigroup Inc., said in a report to investors. “Guidance did not explicitly point to an expectation that rates would remain on hold as in the January statement.”

Wednesday’s decision wasn’t accompanied by a press conference. However, Senior Deputy Governor Carolyn Rogers will deliver remarks and take questions from reporters on Thursday in Winnipeg.

A new batch of jobs data is due on Friday.