(Bloomberg) -- The Bank of Canada is set to become the first major central bank to hit pause on interest rates, with all eyes on what policymakers will say about the next steps. 

Economists and markets expect Tiff Macklem and his governing council to hold the benchmark overnight rate at 4.5% on Wednesday, ending a streak of eight consecutive increases. That would follow through on a January pledge to keep rates where they are while the bank assesses the impact of its tightening campaign. 

The statement-only decision, due at 10 a.m. in Ottawa, won’t include new forecasts but may offer a glimpse into how comfortable officials are staying put as their global peers — including the US Federal Reserve — push rates higher. 

Economists surveyed by Bloomberg see Macklem holding rates steady through most of this year. Traders, however, are pricing in about an 80% chance of another quarter-percentage-point hike at some point in 2023. Just over a month ago, they were betting the Bank of Canada would start cutting as early as this fall.

That shift is partly the result of hotter-than-expected economic data in the US, where stubborn inflation has led short-term money markets to bet on Chairman Jerome Powell raising the Fed funds rate to 5.5% or higher. After the US central bank chief told lawmakers rates will likely have to go higher than previously anticipated, bets on the Fed’s next move tilted toward a half-percentage-point hike instead of a quarter-point move. 

That would test the Bank of Canada’s resolve, as most economists say it can only comfortably lag the policy rate of its powerful neighbor by about 100 basis points. 

“They risk watching the currency tumble,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said by email. “The loonie has already depreciated by enough on a real effective exchange rate basis to be of concern to import price pass-through effects and inflation expectations.” 

The Canadian dollar is the second-worst performing G10 currency versus the US dollar over the past six months. It fell to its lowest level since November on Tuesday, trading at C$1.3733 per US dollar as of 11:27 a.m. in Ottawa.

Macklem’s officials have downplayed fears about rate divergence. “We shouldn’t be too concerned if Canada follows a slightly different path to normalization than our counterparts,” Deputy Governor Paul Beaudry said in speech last month, adding that “what matters most” is getting inflation back to its 2% target. 

The Bank of Canada said its pause is contingent on the economy evolving broadly in line with forecasts that include near-zero growth for the first three quarters of 2023 and inflation returning to target next year. But muddled data are making it difficult for officials to understand exactly how heavily the past year’s rate hikes are weighing on the economy.

Output stalled at the end of last year as businesses pared down inventories, but a rebound in consumption and household spending points to continued resilience among Canadian consumers, despite their large debts. The jobs market is hot, and most economists see a soft landing as the base-case scenario. Prices in the rate-sensitive housing market have fallen 15% since their peak early last year — but there are now signs of recovery. 

Most importantly, inflation has started to moderate, slowing to 5.9% in January from a peak of 8.1% in the middle of last year. Underlying core measures, meanwhile, remain stuck around 5%.

“We still think the most likely scenario is that the BoC will not need to hike interest rates further this year,” Royal Bank of Canada economists Nathan Janzen and Claire Fan said Monday in a report to investors. “That call hinges on whether the previous hikes are enough to slow consumer spending and labor market momentum in the months ahead.”

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

The bank will release a minutes-like summary of deliberations for the decision on March 22. Nearly three quarters of analysts surveyed by Bloomberg said the first iteration of the new publication included useful or worthwhile information.

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