What Moved
The Bank of Canada held its overnight rate at 5.00% on September 6, confirming rate hold expectations that had been building since the July hike. The Bank acknowledged that monetary policy was "sufficiently restrictive" and that it would continue to assess incoming data before deciding on further action (BoC, Sep 6, 2023).
Canadian CPI for August came in at 4.0%, up from the July reading and reinforcing concerns about inflation's stickiness. The rebound from June's 2.8% low point suggested the last mile of disinflation would be the hardest (StatsCan, Sep 2023).
Housing markets returned from summer with steady but unremarkable activity. Prices were flat nationally, with modest gains in some markets offset by continued softness in others. The correction was over, but a recovery had not begun (CREA, Sep 2023).
PE deal activity was picking up in the fall, with several mid-market transactions closing across technology and healthcare. Sponsors were adapting to the higher-rate environment and finding opportunities among companies that had been repriced during the downturn.
What It Means
The September hold confirmed what the market had been pricing in: 5.00% was the peak, and the BoC was now in observation mode. The tightening cycle was over — the question was how long rates would stay elevated before easing began.
For private credit investors, the "higher for longer" scenario was becoming the base case. Markets had been pricing in early-2024 rate cuts, but sticky inflation was pushing those expectations back. This meant that borrowers would need to manage debt service at peak rates for an extended period — a test of endurance more than a test of survival.
The private credit sector had largely sorted itself by this point. Funds with strong loan books, conservative underwriting, and adequate reserves were performing well and generating attractive yields. Funds with problematic portfolios were working through distressed situations — some successfully, others still struggling. The differentiation between well-managed and poorly-managed funds was now clearly visible in the data.
For investors with new capital to deploy into alternative investments in Canada, the extended high-rate period was creating a sustained origination window. Each month at 5.00% was another month of attractive lending opportunities for disciplined managers.
What We're Watching
The October BoC decision would provide further confirmation of the extended pause. Any hint of additional hikes would rattle markets, while commitment to the hold would solidify expectations.
Fall housing data would indicate whether the market could sustain activity at current rate levels or whether the weight of high rates was gradually suppressing demand.
Canadian GDP data would show whether the economy was absorbing the rate shock or beginning to slow — a key input for the BoC's future decisions.
The global rate environment was also reaching a potential turning point. The US Federal Reserve had paused its own tightening cycle, and several emerging market central banks had begun cutting. If the global rate cycle was peaking, the implications for capital flows would be significant — lower global rates would eventually ease borrowing conditions for Canadian businesses and support asset valuations across private markets. The timing remained uncertain, but the directional signal was becoming clearer.
Closing
September confirmed that peak rates were here to stay for a while. For Canadian alternative investors, this meant settling in for a period of endurance — maintaining positions, deploying new capital at attractive terms, and waiting for the eventual easing cycle. Patience was the investment thesis.
For the full quarterly analysis, see Q3 2023: Peak Rates and the Patience Premium.
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