Any recession should be 'shallow and shorter'

Canada’s nearly $300 billion in Covid relief helped the nation navigate the pandemic’s acute phase, and now in its second act is poised to provide a soft landing for the economy.

That’s the view from the chief executive officers of some of the country’s top banks who spoke at the Bank of Nova Scotia financials summit on Wednesday.

Sign up to receive the daily top stories from the Financial Post, a division of Postmedia Network Inc.

A welcome email is on its way. If you don't see it, please check your junk folder.

The next issue of Financial Post Top Stories will soon be in your inbox.

We encountered an issue signing you up. Please try again

The Bank of Canada’s interest-rate increases are cooling parts of the economy.

Still, consumers and businesses have extra cash on their balance sheets, which should help reduce the hit, the executives said.

“You see that in consumer deposits, you see that in business deposits — the stimulus of Covid relief is still in the system,” Canadian Imperial Bank of Commerce CEO Victor Dodig said at the conference. “That will take some time to run off.”

The Bank of Canada on Wednesday delivered its fourth straight outsized interest-rate hike and said that rates will need to rise further to drag inflation down from four-decade highs. The increase follows a surprise 100-basis-point hike in July and half-point raises in April and June, making the current tightening effort one of the most aggressive ever.

Royal Bank of Canada CEO Dave McKay said he’s not concerned about the rate increases setting off a sharp recession because of the extra cash on hand, as well as the country’s strong labour market.

“As we play those forward in different scenarios, we see that as a shock absorber to any hard landing and therefore a quicker recovery,” McKay said. “That’s how we get our head around that this should be shallow and shorter, and therefore we should bounce back more quickly.”

McKay gave the Bank of Canada’s actions so far a vote of confidence, saying they’re reducing growth in mortgage loans, slowing purchase activity on credit cards and cooling investment- and non-investment-grade credit markets.

“That’s what the Bank of Canada wants,” McKay said. “It wants a slowing of activity. It has to start to collapse demand to get inflation down. So all of those are positive signs.”

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

365 Bloor Street East, Toronto, Ontario, M4W 3L4

© 2022 Financial Post, a division of Postmedia Network Inc. All rights reserved. Unauthorized distribution, transmission or republication strictly prohibited.

This website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Service and Privacy Policy.