Economic summary: Week to November 26

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Outside of (South) Africa

Just as the citizens of planet Earth were starting to enjoy their newfound freedom – thanks to herd immunity, increased vaccinations, and / or learning how to live with Delta – a new kid is coming to town. .

And his name is Omicron.

The discovery of this variant of the coronavirus – first detected in South Africa – pushed back expectations of rising interest rates in financial markets that had only been put forward a few days before.

Consider these:

In October, the Bank of Canada announced the end of its quantitative easing program. This was followed very, very soon after by the Reserve Bank of Australia (RBA) decision to “suspend the 10 basis point target for the April 2024 Australian government bond” when its board meeting on November 2.

The US Federal Reserve was not far behind, declaring on Nov. 3 that it would “cut” its purchases from $ 120 billion per month to $ 15 billion per month and every month thereafter.

All in the name of preventing the “transitory” surge in inflation from becoming persistent. But the rise and fall of consumer prices for whatever reason – the surge of pent-up demand due to the easing of pandemic restrictions and the reopening of businesses; supply chain constraints; rising costs of raw and intermediate materials used in production; Better wages; or all of the above – has already prompted financial markets to anticipate the timing of central bank interest rate hikes.

On the contrary, the Reserve Bank of New Zealand (RBNZ) has already taken the plunge.

The RBNZ raised interest rates by 25 basis points to 0.5% in October – ahead of other central bank policy adjustments (mentioned above) – “in order to keep inflation low and support employment maximum durability “.

New Zealand’s first interest rate hike since June 2014 was quickly followed by another 25bp hike in the official RBNZ policy rate to 0.75% following its November 24 meeting. , explaining that,

“Global supply chain disruptions are causing both cost pressures and production constraints at a time when consumer demand remains strong. reductions in the level of monetary policy stimulus. “

Rising inflation also prompted the Bank of Korea to raise interest rates in November – the second in three months.

Financial markets are now betting that the RBA would not be far behind. According to Bloomberg, “Swap markets are fully anticipating a 15 basis point hike in May that would take the spot rate to 0.25% from the current record low of 0.10%, then two more hikes of a quarter point – with the possibility of a third – over the remainder of 2022 “.

No more.

Bond yields fell sharply and equity markets weakened late last week, reflecting concerns about the impact of this new “worry variant” on economic growth.

Already, several countries have put in place travel restrictions and quarantine requirements for humans arriving from South Africa. But news that Omicron has already been detected in Hong Kong, Germany, the Netherlands, Belgium, Italy, Denmark, UK, Israel and Australia (to date) suggests the borders international organizations would also be closed to these “infected” countries.

This could domino infect other countries that could see travel restrictions imposed on them.

Here again is tourism, travel, commerce, international students, etc. Not only that, but it will also intensify the supply chain issues that have caused inflation to spike in recent times.

However, falling consumer demand – if Omicron turns out more grim than Delta – should offset inflationary pressures.

It is still early. Health officials (to date) still do not have enough data on Omicron. More so, in terms of virulence or whether current vaccines are potent in keeping it at bay.

Suddenly, the prospect of a slight increase in interest rates seems to be the better alternative than being confined again.

Health is really wealth.

Read our full COVID-19 news coverage and analysis here.


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