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Inflation Is Draining Consumers’ Savings, National Bank CEO Says

By Kevin Orland

Interest-rate increases and surging inflation may totally wipe out the extra savings that consumers built up during the pandemic by 2023, National Bank of Canada Chief Executive Officer Laurent Ferreira said, a full year earlier than he previously expected.

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There are now serious risks to the “Goldilocks scenario” of slow rate increases and a soft landing for the economy that would benefit commercial banks, Ferreira said. Central banks may ratchet up rates too quickly while failing to control inflation, which has been accelerated by Russia’s war in Ukraine, he said.

“The liquidity buffer that households have built up during the pandemic will shrink much faster,” Ferreira, 51, said in an interview after the company’s annual meeting on Friday. “We have increases in interest rates that we knew were coming and that will start creeping up in mortgage payments. But now you have inflation, notably energy and food, that’s hitting consumers hard.”

Bank of Canada Governor Tiff Macklem has acknowledged the potential for rapid rate increases to curb inflation, prompting traders to price in a higher chance of a 75-basis-point move at the bank’s June 1 policy decision. 

National Bank is telling business clients to raise their inflation expectations and examine their liquidity reserves, Ferreira said. Rate increases so far have yet to curtail demand in the bank’s mortgage business, which is still seeing “very healthy growth,” he said.

However, the recent spate of market volatility, while helping National Bank’s trading business, has “put a pause” on dealmaking activity and initial public offerings. That trend may persist for as long as there’s uncertainty about the war in Europe, he said. 

Longer term, Ferreira said he’d like to see Canada invest in developing strategic and rare-earth metals to make the country “part of the supply chain of the energy transition.” 

“If you do that, you’re going to participate in what’s going to be inflationary in the future,” Ferreira said. “So you cannot just leave it up to the central bank.”

More stories like this are available on bloomberg.com.

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