A prominent CIBC economist said the Bank of Canada could raise its benchmark interest rate again after Wednesday’s hike to five per cent – and that move could be a mistake.

Andrew Grantham, senior economist at CIBC Capital Markets, wrote last month that elevated interest rates could be cooling the economy more than is immediately apparent, meaning June’s rate increase “was at best unnecessary, and at worst a mistake.”

He told BNNBloomberg.ca on Wednesday that he stands by that position following the central bank’s decision to tighten further.

While Wednesday’s policy move wasn’t a surprise, Grantham noted that the central bank maintained its overall tough stance despite some positive economic trends emerging.

“It still strikes me as a bank that is erring on the side of doing too much rather than too little, and we do think there's a very real possibility that they hike one more time in September,” he said.

That could be the wrong approach, Grantham continued. He highlighted that the economy is still operating under “unique circumstances” given the unprecedented supply shocks from the pandemic and war in Ukraine, and contended that economists may be focused on the wrong area by looking solely at growth.

“When you think about the level of economic activity, rather than just being fixated on growth rates like most economists are, you see an economy that's not that strong, that inflation is decelerating, probably quicker than in a lot of other countries,” he said.

“I do think when the dust settles a little bit … that the recent rate hikes will probably be seen as unnecessary.”

CIBC has now moved up its forecast for when the Bank of Canada will begin cutting interest rates, he said, and it’s now anticipating a cut in April of next year rather than June. Bank of Canada Governor Tiff Macklem said Wednesday that it is too soon to talk about rate cuts.

Grantham said the Bank of Canada may be maintaining its tough stance on rate hikes to ensure inflation expectations don’t become “unanchored” and lead to a recession – but a recession could also be triggered from over-tightening, as well as other unintended consequences like dampening business investment.