In a watershed moment of sorts, The Bank of Canada paused its tightening campaign.

Although the hold from Tiff Macklem was expected after the BoC tipped its hand in January, the occasion is worth marking. Wednesday was the first pause from a developed market central bank since the onset of coordinated rate hikes to combat the pandemic-era inflation.

The BoC’s final (for now) hike in January was the eighth of the cycle, and brought the total amount of tightening in Canada to 425bps.

You’re reminded that Macklem did pull the trigger at one point on a 100bps move.

“Overall, the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” the new BoC statement read.

It was an optimistic assessment, even if it’s ultimately borne out. Inflation was still near 6% in Canada as of the latest reading.

“With weak economic growth for the next couple of quarters, pressures in product and labor markets are expected to ease [which] should moderate wage growth and also increase competitive pressures, making it more difficult for businesses to pass on higher costs to consumers,” the bank went on.

Policymakers acknowledged labor market tightness and said that although core inflation has “ticked down,” and even as three-month measures are more favorable at around 3.5%, “both will need to come down further, as will short-term inflation expectations, to return inflation to the 2% target.”

So, the bet is that the delivered tightening from last year (plus January’s 25bps and ongoing QT) will pass through to the economy on a lag such that inflation will continue to moderate without an assist from more rate hikes.

Wednesday’s hold was conditional. The bank “is prepared to increase the policy rate further if needed,” the BoC insisted.

There’s some concern that the loonie could suffer materially given what’s now guaranteed to be a wider policy divergence with the Fed, which is poised to hike at least another 75bps. The pass-through effect of a weaker currency could exacerbate inflation, but I suppose we can eschew any doomsaying for now.

“The contrast between the BoC and the renewed hawkishness at the Fed is increasingly stark,” ING wrote Wednesday, but the bank’s James Knightley and Francesco Pesole don’t think it’ll be necessary for Macklem to restart hikes. “Canada’s high household debt levels and greater exposure to interest rate hikes via a higher prevalence of variable rate borrowing make the economy more at risk of a deeper downturn than the US,” they remarked.

For his part, TD’s chief Canada strategist Andrew Kelvin sounded less sure. “The big picture remains unchanged: The bank needs the Canadian economy to slow materially in the coming months if it is going to return to 2% inflation on the timeline it laid out in the January MPR,” he wrote Wednesday. “With every additional month of resilient economic data, the pressure on the BoC to lift rates ratchets incrementally higher.”