Central banks are likely to maintain their aggressive strategies, RBC head says
In the current global fiscal and geopolitical environment, “the operating word is uncertainty,” according to Royal Bank of Canada CEO David McKay.
While inflationary pressures have seemingly reached their peak, McKay is anticipating that central banks will continue with their aggressive rate-hike trajectories.
“This pushes us even closer towards the end of an economic cycle,” McKay said in a conference call coinciding with the announcement of RBC’s latest results earlier this week.
“Supply chain constraints are being exacerbated by rising geopolitical tension, COVID-related tail risk in Asia, tight labor markets and, more recently, droughts related to climate change.”
Read more: RBC: Inflation, geopolitics to weigh on Canadians’ household finances
“I can’t honestly sit here and predict how things are going to play out,” McKay added. “No-one can. Markets can’t, that’s why markets are volatile right now. This is new territory that we’re treading.”
McKay stressed that a full-fledged crash is unlikely thanks to generally stable client finances, although RBC has allocated $340 million in provisions for credit losses. Approximately $177 million of that tranche will be for at-risk loans that are still in the process of repayment.
“There’s a tremendous amount of uncertainty going forward, and that’s really what we’re reserving against right now,” said Graeme Hepworth, chief risk officer at RBC.
