Monday Market Minute | Dec 12, 2022

BoC delivers final hike to 4.25% — 425 basis points in nine months, the most aggressive cycle in Canadian history

What Moved

The Bank of Canada raised the overnight rate by 50 basis points to 4.25% on December 7, completing the most aggressive tightening cycle in modern Canadian central banking history: 425 basis points of increases in just nine months. Governor Macklem signalled a conditional pause, stating the Governing Council would assess whether rates were "sufficiently restrictive" but leaving the door open to further hikes if inflation proved stickier than expected. The 4.25% rate was the highest since January 2008.

Why It Matters

The completion of the hiking cycle marked a new phase for Canadian private markets. Floating-rate private credit portfolios had captured the full benefit of 425 basis points of rate increases, with all-in yields at their highest level in over a decade. The challenge ahead was credit quality: the lag between rate hikes and borrower stress meant that 2023 would reveal whether private credit managers had maintained underwriting discipline during the origination boom. For the broader alternatives landscape, the pause created a moment of recalibration.

Signal to Watch

January 2023 BoC decision — whether the pause held or the BoC resumed hiking would define the macro backdrop for private markets in the year ahead.

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