RBC’s McKay calls for 'rapid action' on rates to tame inflation

RBC CEO David McKay said the country’s central bank needs to take “rapid action” with multiple interest rate increases to bring inflation under control.

Royal Bank of Canada Chief Executive Officer David McKay said the country’s central bank needs to take “rapid action” with multiple interest rate increases to bring inflation under control.

Speaking in an interview with Bloomberg News on Tuesday, McKay said he does not think the recent acceleration of inflation was transitory. He sees some signs of a wage-price cycle taking root that has already pushed up costs permanently.

“We’ve never really gone back as a society and reduced wages because inflation was temporary,” McKay, 58, said. “This is permanent, sustained inflation that has to be dealt with through monetary policy, and therefore we need rapid action this spring as a series of rate increases to address it.”

McKay’s comments illustrate the extent to which inflation -- along with labor shortages, rising wages and housing affordability -- has become a top area of concern for the nation’s executives. Canada’s inflation rate has been hovering near 5 per cent in recent months, levels not seen since 2003. 

Markets are pricing in at least five Bank of Canada rate hikes this year, beginning as early as Jan. 26, when policy makers will unveil their first rate decision of 2022. Central bank officials have indicated they’re poised to begin raising rates early this year to quell the price pressures after keeping the key policy interest rate at a historic low of 0.25 per cent since March 2020.

Commercial banks charge their best customers just over 2 percentage points above that policy rate.