What Moved
The Bank of Canada raised its overnight rate by 50 basis points to 1.00% on April 13 — double the size of the March hike and a clear signal that the Bank intended to move quickly against inflation. The interest rate impact on private lending was immediate and tangible. CPI had reached 6.7% for March, driven by energy, food, and shelter costs (BoC, Apr 13, 2022; StatsCan, Apr 2022).
Canadian housing began its correction in earnest. April national sales fell sharply from the January-February peaks, and average prices started declining in markets that had seen the largest gains. Toronto, Kitchener-Waterloo, and Hamilton-Burlington were among the first to show meaningful price declines (CREA, Apr 2022).
The interest rate on a conventional five-year fixed mortgage rose above 4% — roughly double the sub-2% rates available a year earlier. For borrowers, the cost of homeownership was changing rapidly.
In private markets, MIC managers reported that borrower inquiries were shifting. New mortgage origination demand was declining as housing activity cooled, while refinancing activity was becoming more challenging as higher rates changed the economics.
Infrastructure and industrial PE continued to see healthy deal activity, with energy transition investments particularly active in the Canadian market.
What It Means
The 50-basis-point hike confirmed that the BoC was serious about aggressive tightening. In just six weeks, the policy rate had moved from 0.25% to 1.00% — a fourfold increase. And more was coming.
For private credit investors, the housing correction was the key development. Rising rates and falling prices worked in tandem to stress mortgage portfolios. Higher borrowing costs made it harder for borrowers to refinance maturing loans, while declining property values eroded the collateral cushion (LTV ratios rising).
The best-positioned MIC managers were those with conservative LTV origination standards (60-65%), short-duration loan books, and borrower quality standards that went beyond collateral value. Managers who had lent at 80% LTV on peak-priced properties in Q1 2022 were now facing the possibility that their collateral was worth less than the outstanding loan balance.
For PE, the tightening cycle was beginning to affect deal economics. Leveraged buyouts that made sense at 3% borrowing costs looked different at 5%. Sponsors were adjusting their underwriting — lower leverage, more conservative assumptions, greater emphasis on operational improvement rather than financial engineering. Across Canadian alternative investments, the shift from financial engineering to operational value creation was becoming a defining theme of the new rate environment.
What We're Watching
The June BoC decision was expected to bring another large hike. Markets were debating between 50bp and 75bp — either way, rates were heading substantially higher.
Housing correction data through the spring would quantify how much damage rising rates were inflicting on valuations. Early indications suggested the correction was broad-based but orderly — a price adjustment rather than a panic.
MIC distribution data for Q2 would provide the first signal of whether portfolio stress was beginning to affect investor returns. For funds with floating-rate loan books, higher rates should translate into improved income — but only if borrower quality holds and defaults remain contained. The tension between rising portfolio yields and rising credit risk would define the sector's performance for the remainder of the year.
Closing
April confirmed that the tightening cycle would be fast and aggressive. For private credit investors, the transition was underway, and the loan portfolios originated during the boom were beginning their test. The managers who had maintained discipline would be distinguished from those who hadn't.
For the full quarterly analysis, see Q2 2022: The Inflation Reckoning.
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