Royal Bank of Canada Chief Executive Officer Dave McKay said Wednesday the bank is maintaining a cautious economic outlook, despite an apparent peak in inflation and a strong labour market as it braces for a possible “brief and moderate recession.”

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McKay made the comments during a call with analysts following the bank’s fourth-quarter and annual results, referring to “elevated uncertainty” that he said is impacting market volatility and client activity.

He said RBC is maintaining its cautious perspective because of “elevated housing and energy prices, political and geopolitical instability, a pressured manufacturing sector and an aggressive monetary policy stance from central banks.”

“Although higher interest rates are needed to preserve long term economic stability, the lagging impact of monetary policy combined with strong employment and significant liquidity in the system has likely delayed what may end up being a brief and moderate recession,” McKay said.


His comments came a day after Statistics Canada reported higher-than-expected third-quarter economic growth in Canada, and a week ahead of an expected policy rate decision from the Bank of Canada. It’s anticipated the Canadian central bank will raise its key interest rate for the final time this year in its ongoing efforts to stem inflation.

Earlier on Wednesday, RBC reported $3.9 billion fourth-quarter earnings, with overall profits higher than what analysts had estimated.

The bank set aside $381 million for potentially bad loans in the fourth quarter, compared to the $227 million the bank released last year in reserves it took to cover any credit losses.

On the call, McKay highlighted the bank’s growing client base and plans to add more clients. He contended that the bank’s “largely deposit-funded balance sheet will be a key driver of profitability in a rising rate environment.”


McKay said the company’s plan to buy HSBC Canada for $13.5 billion, which was announced on Tuesday, will position the bank as a top choice for new clients including those seeking global banking and wealth management services, newcomers to Canada and others.

He called the transaction that RBC hopes to close in 2023 “financially compelling.”

With files from The Canadian Press