EU-UK: Summit Looks To Reset Ties; Obstacles Remain To Smoother TCA Operation

• BOC HOLDS KEY RATE AT 2.75%; LESS FORWARD LOOKING AMID TARIFFS
• BOC SAYS OFFICIALS WILL PROCEED CAREFULLY AMID COMPETING RISKS
• BOC CAN ACT DECISIVELY IF RISKS SHIFT CLEARLY IN ONE DIRECTION
• BOC SAYS MUST KEEP INFLATION STABLE, WILL AIM TO AID GROWTH
• BOC SAYS A LONG GLOBAL TRADE WAR CAN TRIGGER CANADA RECESSION

Following are the Instant Answers for the Bank of Canada interest-rate decision:

• Overnight Rate Target  (2.75%, unchanged)
• Does the Bank signal it is prepared to LOWER rates in the future? Yes
• Does the Bank signal it is prepared to RAISE rates in the future? Yes
• Does the Bank signal it intends to leave rates on hold until the outlook is clearer? Not answered

• Bank of Canada holds benchmark interest rate at 2.75% after seven prior consecutive cuts.
• "Governing Council will proceed carefully, with particular attention to the risks. That means being less forward-looking than usual until the situation is clearer. It also means we are prepared to act decisively if incoming information points clearly in one direction."
• "We will pay close attention to the risks and uncertainties to the Canadian economy and inflation. These include: the extent to which higher tariffs reduce demand for Canadian exports; how much this spills over into business investment, employment and household spending; how much and how quickly cost increases are passed on to consumer prices; and how inflation expectations evolve," Governor Macklem said.
• BOC says it must maintain price stability while aiding economic growth. 
• BOC says short-term inflation expectations have moved higher. 
• Central bank modeled two scenarios: Limited tariffs and uncertainty, new tariffs are negotiated away; and prolonged trade war where Canada Q2 GDP contracts and economy falls into recession for a year.  
• In milder scenario inflation +1.8% in 2025, below BOC's 2% target (Jan forecast +2.3%) and 2% in 2026. Deceleration partly attributed to the end of consumer carbon tax. GDP growth seen stalling in Q2. 
• In worse scenario  CPI +2.7% in 2026 (prior 2.1%). BOC forecasts GDP -1.3% in Q2 2025 at annualized pace. For the full year 2025 GDP slows to +0.8% (Jan projection +1.8%). For 2026 GDP is -0.2% (prior +1.8%).
• The Bank said the partial U.S. tariff relief announced April 9 "moved trade policy back towards the middle of the two scenarios."