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Dec 16 (Reuters) – Britain became the first G7 economy to hike interest rates since the onset of the pandemic on Thursday, with the U.S. Federal Reserve also signalling plans to tighten in 2022 but the European Central Bank only slightly reining in stimulus.
The different paths taken by major central banks underline deep uncertainties about how the fast-spreading Omicron variant will hit the global economy and their differing views on an inflation surge that is landing hard in the United States and Britain, but less so in Europe and less again in Japan.
While the risk of uncontrolled prices has taken precedent for the Fed and the Bank of England, European Central Bank President Christine Lagarde emphasised in a news conference that the pandemic was again depressing spending in the euro zone and threatening growth.
“To cope with the current pandemic wave some countries have introduced tighter containment measures … This could delay the recovery … The pandemic is weighing on consumer and business confidence,” Lagarde said.
In that environment, “we need to maintain flexibility and optionality” by withdrawing support “step by step”, but not committing to a full exit from pandemic support programmes, she added.
The Fed, by contrast, committed on Wednesday to end its pandemic bond-buying by March and laid out an accelerated timetable for interest rate increases.
Fed Chair Jerome Powell said the United States was heading in 2022 towards strong growth and full employment — a far-off prospect for most European labour markets — and that the Fed needed to treat inflation as the more pressing risk.
Bank of England policymakers raised the benchmark Bank Rate on Thursday to 0.25% from 0.1%, confounding economists’ expectations that it would stay on hold. The BoE said inflation was set to hit 6% in April, three times the BoE’s target level.
“The Committee continues to judge that there are two-sided risks around the inflation outlook in the medium term, but that some modest tightening of monetary policy over the forecast period is likely to be necessary to meet the 2% inflation target sustainably,” the UK central bank said.
UK daily coronavirus infections are at their highest since the earliest days of the pandemic, forcing Prime Minister Boris Johnson this week to impose new restrictions.
A first read-out of the UK Purchasing Managers’ Index (PMI) for December on Thursday showed Omicron had already hit British hospitality and travel firms – a day after data showed consumer price inflation at a decade-high. read more
The ECB, which has undershot its inflation target for most of the past decade, kept interest rates on hold and announced the end of its pandemic emergency asset-buying scheme next March.
But the euro zone central bank also promised copious support as needed via its long-running Asset Purchase Programme, confirmed its relaxed view on inflation, and signalled that any exit from years of ultra-easy policy will be slow. read more
“The Governing Council judges that the progress on economic recovery and towards its medium-term inflation target permits a step-by-step reduction in the pace of its asset purchases over the coming quarters,” it said in a statement.
The Bank of Japan is due to announce its policy on Friday. With consumer-level inflation remaining largely absent, only a slight reduction in corporate asset purchases is under discussion at its meeting.
The Fed on Wednesday doubled the pace at which it will cut bond purchases, while forecasts from its policymakers signalled as many as three interest rate increases next year. read more
“The economy no longer needs increasing amounts of policy support,” Powell told a news conference. “In my view, we are making rapid progress toward maximum employment.”
Even if the others are not hard on its heels, Powell and the Fed appear to have set the agenda for a tumultuous 2022 as central bankers chart their paths to the exit, albeit at dramatically different paces.
“You saw it in his congressional remarks that were more about tightening sooner than it was about worrying about the health of the global economy,” said Vincent Reinhart, chief economist for Dreyfus & Mellon.
Norway’s central bank, which had hiked in September on the back of an economic rebound, went ahead with a further rise as expected and said more were likely to follow. read more
Earlier on Thursday, the Swiss National Bank kept its ultra-loose stance in place with a policy rate locked in at -0.75%. Swiss inflation – while rising – is still seen much lower than elsewhere at just 1% next year, falling to 0.6% in 2023.
“The SNB is maintaining its expansionary monetary policy,” it said in a statement. “It is thus ensuring price stability and supporting the Swiss economy in its recovery from the impact of the coronavirus pandemic.” read more
(The story corrects spelling of Dreyfus & Mellon in paragraph 19)
Additional reporting by Leika Kihara in Tokyo and Balazs Koranyi in Frankfurt; Writing by Dan Burns and Mark John; Editing by Edwina Gibbs and Catherine Evans
Our Standards: The Thomson Reuters Trust Principles.
The Bank of Canada is getting a pair of key indicators this week ahead of a rate decision next Wednesday that’s virtually a coin toss, as far as markets are concerned.
First up on Monday, the central bank releases its quarterly Business Outlook Survey, which provides a snapshot of how approximately 100 corporate leaders are feeling about the economy and their own business fundamentals.
When the last survey was released in October, it showed the broadest gauge of sentiment was at the highest level in the survey’s history. That was despite worsening labour shortages and as more than half of respondents (57 per cent) said they expected labour costs to accelerate over the next year.
“[Monday’s] Business Outlook Survey might have been completed too early to catch Omicron uncertainties, so expect respondents to retain a healthy dose of optimism,” said CIBC World Markets Chief Economist Avery Shenfeld in a report to clients Friday.
“The survey could show a majority expecting inflation to run above the top end of the Bank of Canada’s one-three per cent inflation band. If not for Omicron, that would spell a rate hike in January, but the uncertainties surrounding how long this disruption will last should be enough to defer that decision.”
Meanwhile, Statistics Canada will release the consumer price index for December on Wednesday. Economists are expecting to see inflation rose 4.8 per cent year-over-year in the month; that would be the fastest rate of growth since 1991.
As of 8:30 a.m. Monday morning, market data shows investors see a 59 per cent chance of a rate hike when the Bank of Canada delivers its decision on Jan. 26.
The Canadian Real Estate Association’s House Price Index rose by 26.6 per cent in the 12 months up to December, the fastest annual pace of gain on record.
The group, which represents more than 100,000 realtors and tabulates sales data from homes that listed and sell via the Multiple Listings Service, said the supply of homes for sale at the end of the month hit an all-time low.
After pausing for a few weeks in the early days of the pandemic, Canada’s housing market has been on an absolute tear for the past two years, as feverish demand from buyers wishing to take advantage of rock-bottom interest rates has drastically outpaced the supply of homes to buy.
That imbalance is a major factor contributing to higher prices, as buyers have to pay more and more to outbid others because of the lack of alternatives.
Various experts are suggesting that parts of the country are showing signs of being in a speculative bubble, and CREA says the biggest reason for runaway price increases is that there aren’t enough homes being put up for sale.
“There are currently fewer properties listed for sale in Canada than at any point on record,” CREA’s chief economist Shaun Cathcart said. “So unfortunately, the housing affordability problem facing the country is likely to get worse before it gets better.”
CREA says the average price of a Canadian home that sold on MLS in December went for $713,500. That’s actually down from the record high of more than $720,000 in November, but still well up on an annual basis.
High prices don’t seem to be slowing demand, however, as 2021 was the busiest year for home sales ever. Some 666,995 residential properties traded hands on MLS last year, smashing the previous annual record by 20 per cent.
TD Bank economist Rishi Sondhi said that there was a less than two-month supply of homes for sale during the month, which means at the current sales pace, all listings would be gone in less than two months. Under normal conditions, there’s a five-month supply of homes for sale, and Sondhi says that supply and demand imbalance is a major factor in eye-popping price gains.
“With interest-rate pull-forward behaviour keeping demand so strong, and supply struggling to keep up, it’s little wonder why prices are continuing their relentless upward march,” he said. “Buyers pulling forward demand ahead of looming interest rate hikes kept sales at unsustainable levels last month. How long this effect will last is uncertain, but it should eventually fade.”
Health Canada has authorized the use of Pfizer’s COVID-19 antiviral treatment Paxlovid.
The federal health agency says the prescription-only medication can be given to adults ages 18 and older to treat mild to moderate cases of COVID-19, if they have a confirmed positive viral test and are at a high risk of becoming seriously ill.
The authorization comes with specific instructions on scenarios in which the regime cannot be used, including to prevent COVID-19 infections or to treat patients who are already hospitalized due to severe COVID-19 cases.
The medication— two antiviral medicines co-packaged together— cannot be taken for longer than five days in a row, nor can it be given to teens or children.
More details about the authorization are being provided by Health Canada’s Chief Medical Adviser Dr. Supriya Sharma, in a technical briefing in Ottawa.
Pfizer submitted clinical data for the oral medication, on Dec. 1, 2021.
The government has a deal in place with the pharmaceutical giant securing access to an initial one million doses of the therapeutic drug.
Responding to recent calls from the provinces for a swift rollout of this medication in the face of an expected surge in Omicron hospitalizations, the federal government has vowed that delivery of the drug will happen in short order.
Health Minister Jean-Yves Duclos and Procurement Minister Filomena Tassi will be holding a press conference to discuss the rollout of this treatment at 1:30 p.m. EST.
In November 2021, Pfizer released the results of their Phase 2/3 trials for the drug, stating that they had found the pills to significantly reduce hospitalization and death in COVID-19 patients.
Pfizer said that in a randomized, double-blind study of more than 380 patients, there was an 89 per cent reduction in the risk of being hospitalized or dying of COVID-19 in patients that received Pfizer’s pill within three days of displaying COVID-19 symptoms, compared to the study group that received a placebo.
According to Pfizer, Paxlovid is designed to block the activity of an enzyme in SARS-CoV-2 that is essential for the virus to replicate itself, and also help to slow the breakdown of the pill’s ingredients in order to help combat the virus for longer.
“PAXLOVID stops the virus from multiplying. This can help your body to overcome the virus infection and may help you get better faster,” reads Health Canada’s authorization.
Paxlovid contains two medicines co-packaged together, a 150mg pink tablet of Nirmatrelvir and a 100mg white tablet of Ritonavir, which has been used in combination with other antiviral medications before.
The regime is meant to be taken consistently twice a day, for five days in a row. The agency has outlined on their website the detailed instructions for taking this medication, as well as a list of potential contraindications.
For example, Health Canada has issued warnings for patients with kidney or liver problems; patients with a human immunodeficiency virus (HIV) infection; patients who are pregnant, breastfeeding, or are planning to become pregnant; and patients who take a series of other medicines which may interact with Paxlovid.
Side effects can include an altered sense of taste, diarrhea, muscle pain, vomiting, high blood pressure, and headache. Though, given the limited use of this medication to date, the agency cautions that it is possible not all side effects are known at this time and advise speaking with a healthcare professional if other side “troublesome” effects arise.
The medication is what is called a “protease inhibitor antiviral therapy”, a type of medication that has largely been used before to treat HIV/AIDS and hepatitis C.
Health Canada has also been reviewing an experimental pill from drugmaker Merck, called molnupiravir, since mid August. The federal government also has a contract to purchase 500,000 of Merck’s antiviral medication, with an option for 500,000 more pending regulatory approval.
In late December, the U.S. Food and Drug Administration issued an emergency use authorization for both Pfizer and Merck’s drugs.
With files from CTV News’ Alexandra Mae Jones and Sarah Turnbull
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