The Bank of Canada once again left interest rates unchanged today but dropped clues suggesting a strong chance of a hike at its next meeting in July.

In today’s announcement, the Bank of Canada noted that inflation has been close to its two per cent target and will likely be higher than forecast in the near term. It also referenced recent data points that show upside to the U.S. economic outlook, weighed by ongoing uncertainty about NAFTA negotiations and stresses in some emerging markets.

“Overall, developments since April further reinforce the governing council’s view that higher interest rates will be warranted to keep inflation near target,” the bank noted in its release. “Governing council will take a gradual approach to policy adjustments, guided by incoming data.”

Observers noted the tone of the BoC’s statement was more hawkish than previous announcements, including its omission of the line “some monetary policy accommodation will still be needed to keep inflation on target” and the word “cautious” in reference to future policy announcements. It also introduced the term “gradual” to describe the approach to policy adjustments.

“The statement was much more hawkish than the market anticipated, especially after the early week global financial market gyrations,” wrote BMO economist Benjamin Reitzes in a research note. “This is a clear warning shot that a July rate hike is a solid possibility.”

The market consensus is that two more hikes are still on the way this year, with BMO predicting those to come in July and October.

“While we may need a grammarian to distinguish between ‘cautious’ and ‘gradual,’ the message was nevertheless clear: get ready for another rate hike,” wrote TD bank senior economist Brian DePratto. “Gone are concerns about potential slack. This reinforces our view that as the economy continues to perform well into the middle of the year, the bank will have the confidence it needs to raise its policy interest rate at its next scheduled decision, this July.”

The rate hold through to at least July is at least a temporary reprieve for existing adjustable-rate mortgage holders who have already seen their monthly payments increase by about $35 per $100,000 of mortgage since the BoC started raising rates last July.

For new homebuyers, however, variable rates are still available at a discount (prime – 1.00%) as part of the big banks’ variable rate war that began earlier this month. However most of those offers, at least officially, will be ending by this Friday and June 4.

Despite steadily rising fixed mortgage rates over the past year, and recent increases to the big banks’ posted rates earlier this month, there are hopeful signs for fixed-rate shoppers that rates are about to pull back a little bit.

On Tuesday the market saw a sharp drop in 5-year fixed bond yields, which fell nearly 30 bps from their 7-year high reached two weeks ago. Since bond yields lead fixed mortgage rates, mortgage hunters are seeing fixed rates dropping slightly this week.

But as mortgage planner David Larock noted in his blog post this week, “To borrow a famous quote about stock prices, fixed mortgage rates tend to take the elevator when they go up and the stairs when they go down.”