The Bank of Canada startled no one today by leaving its key lending rate unchanged at 1.00%.

The BoC has been in a holding pattern for almost 10 months now, keeping prime rate at 3.00%—to the benefit of variable-rate mortgage holders.

A Reuters survey of 37 economists conducted prior to this announcement was unanimous in predicting today’s rate hold.

All eyes quickly focused on the BoC’s official statement. Analysts say it included more hints of a rate tightening mindset. Here are highlights from that report:

• The BoC said that some monetary stimulus “will be withdrawn.” Its previous wording was “(will be) eventually withdrawn.”
• “Total CPI inflation is expected to remain above 3 per cent in the near term”
• “Core inflation is slightly firmer than anticipated”
• “Core inflation is now expected to remain around 2 per cent over the projection horizon.”
• “High” commodity prices and “persistent excess demand in major emerging-market economies are contributing to broader global inflationary pressures.”
• “(Canadian) Household spending remains solid and business investment robust.”
• “Financial conditions in Canada remain very stimulative”
• “…the Bank expects growth in Canada to re-accelerate in the second half of 2011.”
• Canada’s economy will return to “(full) capacity in the middle of 2012.”
• “…there are clear risks” posed by the “European sovereign debt crisis”
• Pending continued economic expansion and absorption in “the current material excess supply in the economy…some of the considerable monetary policy stimulus currently in place will be withdrawn.”

Despite awakening inflation and growing employment in Canada, economic risks are not dissipating. Those risks include a fragile North American economy, strong loonie and European debt concerns, to name a few. These factors combined have pushed back rate hike expectations until late 2011, or even the first half of 2012.

But some, like Citigroup Capital Markets, are still forecasting higher rates by October.

In a report released Monday, Citi analyst Todd Elmer forecasts the BoC will double its key lending rate to 2.00% by the end of the first quarter in 2012. Elmer said current expectations put too much weight on downbeat external factors and underestimate Canada’s consistently buoyant economic performance.

The financial market has thus far disagreed with economists like Elmer.

One proxy for market sentiment is trading in overnight index swaps (OIS). OIS trade based on expectations of interest rate changes. As of yesterday, they weren’t fully pricing in a 1/4 point rate hike until May 2012. Those expectations will shift closer to the beginning of 2012 after today’s more hawkish tone in the BoC’s statement.

BNN analyst Linda Nazareth suggests that economists may soon have to adjust their forecasts to keep up with market expectations. Within a month or so, she says, economists may take rate hikes “off the table” for 2011.

Three BoC rate meetings remain in 2011. The next interest rate decision will be on Sept. 7.

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Steve Huebl and Robert McLister, CMT