As expected the Bank of Canada (BOC) issued their Monetary Policy Report (MPR) earlier in April and held interest rates at their current level of 1.25%. The BOC has taken a cautious tone on the back of a series of dovish signals. Canadian GDP unexpectedly fell in January on a month-over-month (MoM) basis, triggering concerns that first quarter GDP could be tracking well below the BoC’s forecast. Meanwhile, uncertainties around NAFTA remain a major source of risk as multiple rounds of negotiations have failed to yield any agreement so far, although recent developments look optimistic. Sensitivity of housing activity to interest rates also weighed on the central bank’s decisions. Despite a small pickup in MoM housing activity in March following two consecutive months of declining home sales (-13.8% in January and -6.5% in February), the Canadian housing market remains very sensitive to government policy changes, clouding the outlook for home prices. However, rising inflation in Canada paints a more hawkish picture, with Scotia Economics projecting 2.2% inflation this year and 2.3% in 2019, well above the BoC’s 2% target. In the meantime, communication from the BoC could trigger near-term market volatility, especially at the short end of the Canadian yield curve and in the Canadian dollar.