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RBC CEO Says Fiscal Stimulus Also Needed to Battle Virus Impact

RBC CEO Says Fiscal Stimulus Also Needed to Battle Virus Impact

(Bloomberg) -- Royal Bank of Canada Chief Executive Officer David McKay expects the coronavirus to deliver at least a short-term punch to the global economy and government stimulus will be needed to buffer the impact.

“I don’t think purely monetary rate cuts are going to satisfy the disruption that’s coming out to corporate cash flows and consumer cash flows,” McKay said Tuesday at a webcast conference hosted by the bank’s RBC Capital Markets division. Therefore economies need a coordinated response between rate cuts and “effective and targeted fiscal stimulus,” he said.

RBC CEO Says Fiscal Stimulus Also Needed to Battle Virus Impact

The comments from the head of Canada’s largest lender kicked off the annual RBC Capital Markets Global Financial Institutions Conference in New York, which was turned into a webcast-only event due to growing concerns about the spread of the virus.

McKay said he doesn’t expect negative interest rates to happen in North America, but it would be painful if it does.

“I would hope that we don’t see negative rates in particular because it’s very difficult on the industry, difficult to maintain an investment profile in a negative-rate environment,” he said.

Three Scenarios

The CEO outlined three scenarios for how the coronavirus would affect the global economy. The first case sees the crisis under control within four to six weeks and a “V shaped or U shaped recovery,” though some short-term demand destruction may lead to half a percentage point to full point hit to growth in the next quarter or so.

“It’s hard to predict exactly where the economy is going to go over the next month to six months,” McKay said. “You expect a fairly material short-term impact.”

His second scenario sees a more prolonged period of six to eight months as the impact of the virus spreads through worldwide markets, with precautionary measures slowing demand and affecting a number of industries.

“Then there’s obviously a worse-case scenario where this goes on for a prolonged period and you see more harmful damage to the economy,” McKay said. “You’ve got to think along those lines and think through your strategies as a business in that context, because I don’t think any of us really know yet which of those variations and hybrids of those scenarios are going to come into play.”

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, ;Derek Decloet at ddecloet@bloomberg.net, Jacqueline Thorpe, Daniel Taub

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