The Bank of Canada announced Wednesday morning that it is holding its key interest rate at 5%, with the bank rate at 5.25% and the deposit rate at 5%. With the key interest rate at its highest in Canada since 2001, we have seen investment strategies tactically move to more defensive positions and pivot to more defensive strategies overall. One of the markets attracting more money is the bond market.
“On a broad scale, global money managers are rebalancing their asset mix by pivoting away from equities and into debt, especially in privates,” says Ken Lee, Vice President of Investments at Gentai.
“A fundamental factor contributing to this would be that interest rate levels are not only affecting retail consumers but institutional real estate owners as well.”
While this is the third straight time that the key interest rate has held steady, future rate hikes are a real possibility.
“In Canada, there is growing evidence that past interest rate increases are dampening economic activity and relieving price pressures,” said the Bank of Canada Wednesday morning.
Consumption has been subdued, with softer demand for housing, durable goods and many services.
Bank of Canada also stated that the surge in Canada’s population is “easing labour market pressures” in some sectors while adding to housing demand and consumption.
Overall, several factors suggest that supply and demand in the economy are now “approaching balance”. The Canadian economy will see relatively weak growth for the rest of 2023 before increasing in late 2024 and 2025.
What investors need to know
“The possibility of the key interest rate increasing remains, as core inflationary pressures, increasing inflationary risk, key uncertainties and lack of downward movement also still remain,” added Ken Lee.
As an alternative investment manager and alternative direct lender, two core strengths across our investment offerings and our overall investment strategy is that we are naturally uncorrelated to the volatility of the public equity markets and the traditional investment space, and we actively measure, mitigate and manage risk through tactical calibrations in our risk management protocols and metrics, which we would argue as pivotal in staying ahead of uncertainty.