The Bank of Canada is “impotent” in its ability to stimulate credit and is only stimulating the sub-prime market where interest rates are still important, according to CIBC Capital Markets deputy chief economist Benjamin Tal.

“[Borrowing money] is cheap already and I do believe that the ability of monetary policy to impact credit is limited because interest rates are so low to start with,” he said in an interview with BNN.

Canada’s central bank held the line on interest rates Wednesday, keeping its overnight lending rate at a historic low of 0.5 per cent.  Governor Stephen Poloz also said a rate cut was “off the table” at this meeting.

In its Monetary Policy Report, the Bank of Canada is forecasting the overall debt-to-disposable income ratio to edge even higher.

By the last quarter of 2016, Canadians owed a collective $2 trillion in household credit market debt, 65.5 per cent of which was attributed to mortgages as soaring prices in hot housing markets force Canadians to dig deeper into their wallets. 

Tal says raising interest rates is important in dealing with Toronto and Vancouver’s housing affordability crisis, however most Bay Street economists aren’t forecasting a 25 basis point increase until possibly next year.

“We have a generation of Canadians that never experienced high or even rising interest rates. For them, those extremely low mortgage rates…that’s the norm.”

“That’s why I believe, that when it comes to credit generation, the Bank of Canada is impotent in its ability to actually stimulate credit,” Tal said. “The only thing they are stimulating is actually the sub-prime market, I believe, where interest rates are still important.

Correction: A previous version of this story misinterpreted Benjamin Tal’s comments on the Bank of Canada and credit markets. BNN regrets the error.