Monday Market Minute | Sep 12, 2022

BoC hikes 75bps to 3.25% — the overnight rate now exceeds neutral for the first time since 2008

What Moved

The Bank of Canada delivered a 75-basis-point hike on September 7, taking the overnight rate to 3.25% — above the top end of the BoC's estimated neutral range of 2-3% for the first time since before the global financial crisis. Governor Macklem explicitly stated that monetary policy was now in "restrictive territory" and that the Governing Council expected further rate increases would be needed. The cumulative 300 basis points of hikes in six months represented the fastest tightening cycle in Canadian central banking history.

Why It Matters

Crossing into restrictive territory changed the macro dynamic from "removing stimulus" to "actively slowing the economy." For private markets, this distinction was critical: restrictive rates would eventually compress economic activity, increasing credit risk and reducing corporate earnings growth. Private credit managers needed to shift focus from capturing yield uplift to monitoring borrower health. The best-positioned portfolios were those with senior-secured exposure to essential, non-cyclical sectors.

Signal to Watch

Canadian GDP growth for Q3 — any sign of contraction would confirm the BoC was succeeding in slowing the economy, but also raise the stakes for credit-sensitive private market allocations.

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