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The Bank of Canada is expected to hold interest rates steady on Wednesday, weighing the resilience of the Canadian economy against stress in the global banking system as it waits for inflation to recede.

The bank has been in a holding pattern since early March, when it kept its benchmark lending rate stable at 4.5 per cent after eight consecutive increases. That made it the first major central bank to halt its rate-hike campaign.

Since then, the bank has received conflicting economic signals. The Canadian economy is holding up better than expected in early 2023, recent data show, largely defying efforts by the central bank to dampen consumer spending and push up unemployment.

At the same time, banking-sector turmoil in the United States and Europe over the past month has raised concerns about financial stability and dimmed the economic-growth outlook, with nervous banks expected to pull back on lending.

Governor Tiff Macklem has said the decision to pause rate hikes is “conditional,” and that the bank may move again if it sees an “accumulation of evidence” that inflation is not subsiding. But private-sector analysts see little chance that Mr. Macklem and his team would restart monetary-policy tightening this week, and rate cuts are off the table until inflation falls further.

The annual rate of Consumer Price Index (CPI) inflation stood at 5.2 per cent in February, down from a peak of 8.1 per cent last June, but still more than twice the central bank’s 2-per-cent target.

Central-bank economists expect CPI inflation to fall to around 3 per cent by the middle of the year. The bank will publish an updated quarterly forecast for inflation and economic growth on Wednesday.

“At this point, there is simply just not enough evidence for the BoC’s communications to tilt more dovish or hawkish, especially in the context of the recent round of financial instability,” Royal Bank of Canada rate strategists Jason Daw and Simon Deeley wrote in a note to clients.

“This will leave the market dissecting any small nuances to judge where policy is headed.”

Interest-rate increases work with a lag, curbing consumer spending as homeowners renew their mortgages at higher rates and businesses cut back on hiring. The Bank of Canada is forecasting near-zero economic growth through the first half of 2023. Most Bay Street analysts expect Canada will enter a mild recession this year.

So far, however, the economy is proving remarkably robust. After stalling in the fourth quarter, real gross domestic product rose 0.5 per cent in January from the previous month, and preliminary estimates suggest it grew a further 0.3 per cent in February. Canadian employers keep hiring workers, adding another 35,000 positions in March while the unemployment rate remains near a record low.

Bank of Canada officials have argued that unemployment will need to rise to get inflation back down to 2 per cent, and they have said that wages are growing too quickly without an accompanying increase in labour productivity.

“In this topsy-turvy world, good news for the economy isn’t really what we’re looking for,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, wrote in a note to clients.

“If the slowdown that central banks are aiming at fails to materialize, that could force yet more rate hikes, and risk a harder landing.”

The Bank of Canada’s quarterly business and consumer surveys, published last week, did contain some hints that the economy is approaching a turning point. Business sentiment continues to worsen and companies are expecting slower sales in the coming year. Consumers reported dialing back spending plans.

By pausing its monetary-policy tightening last month, the Bank of Canada managed to avoid some of the tough decisions that other central banks faced after the collapse of Silicon Valley Bank and two other regional banks, as well as the emergency sale of Credit Suisse to UBS Group.

The bank runs – caused in part by losses tied to rising interest rates – sparked fears of broader financial contagion. This put central banks in a delicate position: Should they keep raising rates to combat high inflation? Or should they hold off tightening to prevent further strain in the financial system?

The U.S. Federal Reserve, European Central Bank and Bank of England all pressed ahead with interest-rate increases last month, although they dialed back their inflation-fighting rhetoric.

After announcing a quarter-point increase on March 22 , Fed chair Jerome Powell suggested that U.S. interest rates may not need to go as high as previously anticipated because banking turmoil would likely lead to a contraction in lending, acting as a substitute for additional monetary-policy tightening.

Fears of a broadening financial crisis have subsided in recent weeks, but markets are still pricing in a lower peak for the Fed’s rate-hike campaign than previously expected, as well as several rate cuts before the end of the year.

Interest-rate swaps, which capture market expectations about monetary-policy decisions, are pricing in two quarter-point rate cuts by the Bank of Canada by the end of of 2023, according to Refinitiv data.

All eyes will be on the Bank of Canada’s monetary policy announcement on Wednesday to see if the central bank stands pat on interest rates. Earnings season also kicks off with U.S. bank earnings on Friday. Globe Advisor assistant editor Rajeshni Naidu-Ghelani outlines what to watch out for in investing and financial news in the Advisor Lookahead.

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