Monday Market Minute | Jan 24, 2022

BoC holds at 0.25% but signals liftoff is imminent — March hike all but confirmed

What Moved

The Bank of Canada's January 26 decision loomed large heading into the week, with markets split between a surprise January hike and a March start. Governor Macklem's December remarks had turned decidedly hawkish, dropping the "transitory" framing for inflation entirely. CPI at 4.8% — more than double the 2% target — left the Governing Council with diminishing room for patience. Bond markets had already priced in five 25-basis-point hikes for 2022.

Why It Matters

The shift from pandemic-era emergency rates to a full tightening cycle would ripple through every corner of Canadian private markets. Private credit managers with floating-rate books stood to see immediate yield increases. Conversely, private equity sponsors carrying variable-rate acquisition debt faced rising carrying costs, and leveraged real estate plays priced at cap rates below borrowing costs would face reckoning.

Signal to Watch

The BoC's Monetary Policy Report language on inflation persistence — the gap between "temporary" and "entrenched" would determine whether markets expected four hikes or seven.

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