Five-year rate hike would ‘shock’ the economy: CIBC’s Tal

One Bay Street economist said the five-year mortgage rate growth needs to take a slow-and-steady approach – or else risk hurting the Canadian economy.

Benjamin Tal, deputy chief economist of CIBC World Markets Inc., told BNN Bloomberg the risk of a sudden rate spike could come from the Bank of Canada’s sentiment in undermining inflation concerns. 

Tal added that the bank’s tone could lull investors into a false sense of security, believing that “everything is fine”.

“People will realize that’s not the case and you will have a step increase in the five-year rate that will be a shock to the economy that potentially can be recessionary,” said Tal in a television interview.

A gradual rise could address the issue of hot housing markets across Canada’s largest cities, which have seen double-digit price increases over the pandemic.

“If you see the five-year rate rising slowly on a gradual basis, the housing market will soften and that will be actually a good thing, not a bad thing,” Tal added.

“Everybody knows that the best way to slow down the market is the five-year mortgage rate. If it goes slowly by another 20-, 30-basis points over time, I think that will do the trick.”

 The Canadian central bank will make its next interest rate decision on Wednesday.