The Bank of Canada kept its benchmark lending rate at 0.25 per cent Tuesday, reiterating its conditional commitment to hold rates steady until the middle of 2010.

"While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly," the bank said in announcing the rate decision.

The decision to keep rates low concerns some economists.

"It's too much of a good thing," Benjamin Tal, an economist with CIBC World Markets, told Havard Gould of CBC's The National. "It's stealing [sales] activity from the future."

Gould's report will be broadcast Tuesday evening.

Mortgage rate increases only a matter of time

"We're seeing 10, 12, 13 per cent increases in real estate value in places," Tal said. "In the ninth inning of a recession, that's crazy. Are we creating a bubble? If we continue this way for another 12 months, we will be."

Tal warned that some consumers face a major shock when their mortgages and other debt payments rise, which he says is only a matter of time.

"Rates will rise, and when they do, they will rise much faster than when they fell," he said. "The amount could be a two or three percentage point increase."

Borrowers should ask themselves if they can afford such an increase, Tal said. "If you cannot, buy a smaller house."

Toronto mortgage broker Marcus Tzaferis would agree.

"To those on a variable rate who aren't keeping an eye on it, I would say call your bank," he said. "I think there's a belief that the worst is behind us, and there's no way property values can decrease again, but in actual fact we didn't really see much of a decrease.

'This is a bubble.'— Marcus Tzaferis, mortgage broker

Tzaferis said conditions now are artificial.

"I believe we have inflated prices. This is a bubble."

Although recent data on GDP and inflation has diverged somewhat from projections, "the main drivers and the profile of the projected recovery in Canada remain consistent with the bank's views," the bank said.

The Canadian economy grew by a tepid 0.1 per cent in the third quarter, Statistics Canada reported earlier this month.

Canada's central bank expects economic growth to become more solidly entrenched throughout 2010 and inflation to return to the two per cent target in the second half of 2011.

Loonie's threat downplayed

RBC economist Dawn Desjardins expects the central bank will raise rates by a full percentage point in the latter half of 2010, once it is more confident the recovery is underway.

The central bank softened its view on the impact of the strengthening currency, indicating “persistent strength in the Canadian dollar … could act as a significant further drag on growth and put additional downward pressure on inflation," Desjardins noted in reaction to the decision.

The central bank is set to unveil its next decision on lending rates on Jan. 19, 2010.