Some observers now believe the Bank of Canada will raise interest rates just two more times, and then call it quits.
And even then, it won' t be until later this year, a relief to Canadians juggling heavy debts and those who would like to buy a home.
Housing affordability will still be an issue in regions where prices are high, of course, such as the Vancouver and Toronto areas, but economists also believe the cost of a home will at least be steadier.
Bank of Montreal economists, for example, expect the Bank of Canada will raise its benchmark overnight in increments of one-quarter of a percentage point, in July and December, and forego any increases next year.
Now at 1.75 per cent amid the central bank's caution, that would see the key rate peak at 2.25 per cent, below what had been expected until recently and also shy of its earlier-stated goal of a neutral 2.5 to 3.5 per cent.
“Canada is dealing with slowing global growth, lower oil prices and production cuts, a slowing housing market, and downside risks from the U.S.-China trade war,” said Benjamin Reitzes, BMO’s Canadian rates and macro strategist.
"That’s more than enough reason for the BoC to be more cautious through the first half of the year, and to further delay the next rate hike."
Trouble in the oil market was largely behind the Bank of Canada's pause, and it's downgrade of the economic outlook, when it held the key rate steady last week.
But that’s not the only reason for the restraint among Governor Stephen Poloz, senior deputy governor Carolyn Wilkins and their central bank colleagues.
Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen PolozSean Kilpatrick/The Canadian Press
"It looks as though the persistent softness in the housing market has increased concern at the BoC," Mr. Reitzes said.
"Indeed, debt service ratios have risen close to their prior peak (hit in 2007Q4), suggesting that households are under increasing pressure from rising interest rates," he added.
"Fortunately, the huge rally in Government of Canada bonds over the past couple of months should limit any further increases in mortgage rates (and perhaps even bring term mortgage rates down if current levels are sustained)."
Toronto-Dominion Bank senior economist Fotios Raptis agreed that the central bank’s “odyssey is likely coming close to a conclusion” and that there’s no longer the “urgency” to get to neutral.
“The bank may have just enough ammunition to combat the next downturn,” Mr. Raptis said.
“Of course, this assumes that it avoids a U.S.-style household deleveraging, a turn of events that could require much greater stimulus than interest cuts alone could deliver,” he added.
Consider, too, that Capital Economics believes we haven't yet even felt the full impact of the earlier rate hikes before the Bank of Canada called a halt.
"A rule of thumb is that it takes 18 months for policy changes to take their full effect on the economy," said Stephen Brown, the group's senior Canada economist.
"This implies that only the bank's first hike, from 0.5 per cent to 0.75 per cent in July, 2017, is fully in the system," he added.
"With the economy already showing some signs of faltering while 100 basis points worth of additional rate rises have yet to be fully felt, the case for further rate hikes looks weak."
It's true that insolvencies among consumers have ticked up recently, but they're low and not expected to surge.
Consider that the Fitch Ratings agency projects mortgage arrears in Canada of just 0.3 per cent by the of this year, up from 0.25 per cent in the second quarter of 2018.
The credit rating agency expects the Bank of Canada to go to 2.5 per cent this year, while "fixed mortgage rates should rise by less than 50 basis points as mortgage demand softens," said Fitch director Susan Hosterman.
“Borrowers paying variable-rates and those resetting fixed-rates have seen rates increase by as much as one percentage point since mid-2017, but most mortgages are fixed for five years, which will support performance in 2019."
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