Monday Market Minute | Oct 30, 2023
The BoC held at 5.00% for the third consecutive decision, and swap markets began aggressively pricing in rate cuts for the first half of 2024.
What Moved
The Bank of Canada held its overnight rate at 5.00% at the October 25 decision, citing slowing economic growth and moderating inflation. The accompanying Monetary Policy Report revised GDP growth downward and projected inflation returning to the 2% target by late 2025. The tone was notably less hawkish than prior meetings — while the Bank maintained that it was "prepared to raise rates further if needed," the emphasis had shifted toward patience and data dependence. Swap markets responded by pricing in the first rate cut for April 2024.
Why It Matters
The emerging consensus around 2024 rate cuts introduced a new strategic consideration for private markets investors. Private credit portfolios earning peak yields had a defined runway — once cuts began, floating-rate returns would decline. The question was whether to maximize current income or begin positioning for a lower-rate environment. For real estate, the prospect of cuts was unambiguously positive, as lower rates would reduce financing costs and support valuations. PE sponsors saw potential for the exit market to reopen as financing conditions eased.
Signal to Watch
The speed at which the market was pricing rate cuts — nearly 100bps of cuts priced by end-2024 — created a risk that expectations were running ahead of reality. Any inflation surprise could violently reprice that assumption.