“If economic developments evolve broadly in line with the outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases,” the Bank of Canada said Wednesday.

It was a watershed moment. Or as much of a watershed as moments in Canadian monetary policy can be.

At its January meeting, the BoC delivered one final rate hike, the eighth straight, bringing the total to 450bps in less than 11 months.

If you’re keeping score at (an overpriced) home, 4.5% is a 15-year high.

Although the size of what may be the final hike in the cycle wasn’t a surprise, the BoC’s decision to declare policy on hold was. Frankly, it’s not obvious what Tiff Macklem hoped to achieve from being so explicit. Almost as a rule, you don’t want to relinquish your optionality unless there’s a point.

Macklem was besieged from both sides of the political spectrum in 2022, and that’s a key storyline, but I don’t see what he stood to gain (or lose) in that context from stating definitively that the BoC intends to stay on hold barring data surprises. I suppose that might pacify critics on the left, but if that was a concern (and please, spare me the “central banks are independent and don’t listen to politicians!” bit), they might’ve just said the GC intends to evaluate the proper course of policy based on the incoming data going forward and left it at that.

In any event, inflation in Canada is obviously nowhere near target, although at “just” 6.3% in December, it was well off the highs. Core inflation is stuck around 5%.

“Ongoing excess demand in the economy continues to exert upward pressure on prices but, with lower energy prices, improvements in global supply chains and the effects of higher interest rates moving through the economy, inflation has started to ease,” January’s monetary policy report said.

And yet, the bank conceded that “inflation for prices of services excluding shelter is more persistent,” and for food and housing, it “remains particularly high.” Although house prices are falling, rising mortgage interest costs are offsetting those declines. The BoC cited three-month inflation, which has receded to around 3.5%. That should presage “a significant slowdown in inflation in coming months,” the bank said.

The new report acknowledged that near-term inflation expectations are still “well above” 2%, and said that although the share of firms expecting price increases is lower, inflation uncertainty is still very high. As is generally the case in the US, longer-term expectations are well-anchored.

In addition, the report described the economy as persisting in a state of excess demand, and called the labor market “still tight.” In December, the economy added 104,000 jobs, 20 times more than expected.

The case for a hold rests on the still tenuous notion that inflation is on a sustainable path lower, and also on the read-through of higher rates for mortgages and consumption — that is, on the idea that the bill will soon come due for last year’s tightening, helping to balance supply and demand.

To be sure, the hold guidance was contingent — the BoC included boilerplate language about being ready to hike rates again if necessary. But with just one sentence, the bank has now materially increased the odds of the market speculating aggressively on easing should the data give traders an excuse.

I’d be remiss not to note that the signaling effect for other developed market central banks is meaningful.