What Moved
On March 2, the Bank of Canada rate hike arrived: a 25 basis point increase to 0.50%, the first since October 2018 and the end of two years of emergency-level rates. The Bank signaled that further increases were coming, with inflation at 5.7% and rising (BoC, Mar 2, 2022).
The move was widely expected but nonetheless significant. It formally ended the zero-rate era that had shaped every corner of Canadian financial markets since March 2020. Within six weeks, the Bank would hike again — 50 basis points on April 13.
Canadian housing showed the first signs of slowing. While March sales remained elevated in absolute terms, the month-over-month trend was declining as rate-hike expectations began to dampen buyer enthusiasm. The frenzy of January and February was moderating (CREA, Mar 2022).
The OSC alleged that Bridging Finance executives had orchestrated a fraud, adding further detail to the receivership proceedings. The regulatory case was building (OSC, Mar 2022).
Canadian PE activity remained healthy in Q1, though sponsors were adjusting deal structures to account for the changing rate environment.
What It Means
The first rate hike — covered in detail in our event-driven analysis — was a regime change for Canadian private markets. The assumptions that had driven the alternatives boom — cheap borrowing, rising asset prices, compressed yields — were now being challenged.
For private credit investors, the immediate impact was modest. A 25bp increase didn't dramatically change borrower economics. But the signal was clear: this was the beginning, not the end. The BoC was committed to bringing inflation under control, and that meant significantly higher rates ahead. Borrowers who had been comfortable at 0.25% needed to be comfortable at 2%, 3%, or higher.
For real estate, March marked the transition from boom to uncertainty. Borrowers who purchased homes in January and February at record prices and were now closing their transactions faced a different rate environment than when they signed their offers. Development projects underwritten at 2020-2021 financing costs were seeing those assumptions erode.
The constructive view: higher rates would compress the number of active lenders, reduce competition, and improve risk-adjusted returns for disciplined managers. Across the landscape of Canadian alternative investments, the MICs that survived the transition with strong loan books intact would emerge in a better competitive position.
What We're Watching
The pace and size of future hikes was the critical variable. Markets were debating whether the BoC would move in 25bp or 50bp increments — a question with significant implications for every rate-sensitive investment.
Spring housing data would show how quickly rate sensitivity was translating into reduced demand. The speed of the housing correction would determine the pace of stress in private credit portfolios.
Ninepoint's restructuring process was underway, and the outcomes for affected investors would provide a template for how private credit stress situations resolve.
The Bridging Finance regulatory proceedings were also worth following closely. The OSC's fraud allegations represented the most serious enforcement action in the Canadian private lending space in years, and the case's outcome would have implications for regulatory oversight of the broader exempt market.
Closing
March 2022 was the dividing line. Everything before was the boom; everything after would be the adjustment. The first hike was small, but its significance was enormous — it began the process of unwinding two years of emergency policy and testing every investment made under those conditions.
For the full quarterly analysis, see Q1 2022: The Tightening Begins.
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