The Bank of Canada’s decision not to hike interest rates in March will likely continue for much of this year.

The British Columbia Real Estate Association has published its Mortgage Rate Forecast and chief economist Cameron Muir believes the bank will remain cautious.

“We are forecasting the Bank of Canada will follow up its January rate increase with at least one more rate increase in 2018,” he writes. “However, it will likely hold off until later in the year so policymakers can properly assess the impact not only of its own tightening over the past year, but also the impact of newly implemented B-20 guidelines on mortgage qualification rules and the heightened risk to Canadian exports from US trade policy.”

The key driver of the BoC decisions over the next two years will be inflation, Muir adds. While it is possible that the 2% target will not be reached, BCREA is forecasting that it will as full employment is reached.

Hitting the inflation target would mean a gradual increase in interest rates to its neutral level of 3% over the next two years.

There could of course be a sharper rise in inflation to nearer 3%, which would see a steeper increase in interest rates with the BCREA forecast for discounted mortgage rates then rising to 4% by the end of 2018 and 4.5% by 2019.

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