Will mortgage rates rise sooner than later? Tal says the BoC doesn’t plan it

According to the recent forecast from a Bay Street economist, the central bank will hardly raise its key lending rate ahead of the U.S. Federal Reserve.

“There’s not so much time for the Fed to start acting. But still, in my opinion, we can see that happening in Q4 of 2022”, – noted Benjamin Tal, deputy chief economist at CIBC World Markets Inc. “The Bank of Canada doesn’t even think about raising rates before the Fed.”

He says part of the strategy is for the BoC to raise rates after the Federal Reserve in order to give some time for the national currency to go down against the greenback.

Tal believes timing is vital when it comes to raising rates, that’s why the Bank of Canada needs to choose the approach wisely, balancing between making changes too soon and too late.

“In case you don’t act in time, and inflation goes up, it may lead to significant long-term influence on the curve,” – he said.

Tal says the 10-year U.S. Treasury yield exceeded 1.3% this week for the first time in almost a year.

“Acting too late and letting inflation take over can be extremely damaging for the stock market,” – he added.

As inflation is a lagging indicator, Tal believes it’s too difficult to determine the exact effect the BoC’s policy has on growing inflation.

“It’s like noticing a brown spot on a fruit: when you see it, it’s too late. This is what may happen to the inflation”, – he noted.