After back-to-back interest rates hikes, experts are saying that the Bank of Canada can stay on the sidelines for longer than first anticipated, with tighter mortgage rules slowing the housing market and uncertainty about NAFTA clouding the outlook.
While more rate increases are soon enough to come, possibly before the end of the year, the central bank is expected to hold rates at 1% on Wednesday as the list of unknowns and a moderating economy force policymakers to watch and wait.
The unknown fate of the North American Free Trade Agreement, a stronger Canadian dollar and yet more housing regulation are combing to lower consumption and exports, slowing what had been an unexpectedly strong economic spurt early in the year.
What's more, the Bank of Canada needs to assess how hikes in July and September play out, particularly since new mortgage regulations finalized last week by Canada's banking regulator add to the overall tightening effect on indebted households.
The rules from the Office of the Superintendent of Financial Institutions (OSFI) come on top of separate moves by the provinces to cool housing markets in Toronto and Vancouver.
Analysts will comb through Wednesday's policy statement for the bank's outlook on the housing market and how risks around trade policy have increased after an acrimonious end to recent NAFTA talks.
Bank of Canada Governor Stephen Poloz said earlier this month that while there would be a negative shock to the economy if talks collapse, the bank would wait to see what happened before deciding how to react.
One expert said that before the OSFI rules and the deterioration in the NAFTA talks, he had expected another rate hike in December, but now sees sees the bank on hold into next year.
Others see a hike sooner, with third-quarter growth on track to match the central bank's 2% forecast and inflation ticking up.
Markets see 47.2% odds of a third rate hike in December, while the median forecast also predicted another hike before the year is out.