The Bank of Canada left interest rates where they were today, citing weaker-than-expected data in the first quarter.

In its Monetary Policy Report, which was also released today, the bank noted that the Governing Council considered recent economic data “very carefully” and concluded the softness was due mainly to two temporary factors: the new mortgage rules and an unexpected drop in exports.

The bank said the new stress test that came into effect on January 1 caused house sales to be pulled forward into the fourth quarter of 2017.

“Although we are still expecting the housing sector to moderate in 2018 compared with last year, we can expect a partial recovery of activity in the second quarter,” the bank noted.

In his press conference following the rate decision, Governor Stephen Poloz said the overall economic activity is expected to rebound later in the year, with GDP growth of 2.5% in Q2.

“The economy is projected to operate slightly above its potential over the next three years, with real GDP growth of about two per cent in both 2018 and 2019, and 1.8 per cent in 2020,” the bank said.

Future Hikes Still Possible

Many analysts weighed in following the decision, saying the bank’s comments and forecasts for later in the year leave rate hikes on the table for 2018.

“The tone of the statement was generally upbeat, suggesting the BoC remains on a slow but steady rate hike path,” noted Benjamin Reitzes of BMO Capital Markets. “We remain very comfortable with our call for the next hike to come in July.”

Reitzes noted that the bank’s hawkish forecast for the second half of the year suggests the BoC is “looking for some stability in housing over the coming months, at a minimum.”

OIS markets are still fully pricing in two additional rate hikes in 2018.

Economists at CIBC pointed out the dichotomy in the bank’s statement, which highlighted a pick-up in inflation and “little slack” remaining in the economy, while at the same time referencing “escalating” global risks and the continued need for “some monetary policy accommodation.”

“Sum it all up and you have a central bank happy to move interest rates higher still, but only very gradually, and we stick to our forecast for the next hike coming in July, followed by a hold for the balance of the year,” they wrote.

Good New for Homeowners…For Now

The rate hold was good news for adjustable rate mortgage holders, who, since July 2017, have already seen their monthly payments jump by about $35 a month per $100,000 of mortgage.

The BoC’s 75 bps of increases since last summer have already driven mortgage costs to four-year highs.

And that’s starting to have a psychological effect on homebuyers.

RBC’s latest Home Ownership Poll found that Canadians are growing increasingly concerned about rising rates, and are considering changing their homebuying plans as a result.

The survey found that 61% of Canadians now say they are “very” or “somewhat” concerned about rising interest rates (vs. 51% last year).

In response, 35% say they are thinking about making their home purchase sooner in order to take advantage of still relatively low interest rates, while 32% are considering an earlier purchase to get into the market ahead of potential future hikes.

The Bank of Canada’s next rate decision will be delivered on May 30.