Aurelia Butler

OTTAWA (Reuters) – The Bank of Canada on Wednesday held its key overnight interest rate unchanged, as expected, and said inflation was broadening even as it warned that the Omicron coronavirus variant has created “renewed uncertainty.”The central bank, in a regular rate decision, left its key overnight interest rate at 0.25% and maintained guidance that economic slack would be absorbed in the “middle quarters” of 2022, setting the stage for a first rate hike as soon as April.But it dropped a reference to the pressures pushing up prices as being “temporary,” while noting employment had returned to pre-pandemic levels, with job vacancies high and wage growth picking up.”Inflation is elevated and the impact of global supply constraints is feeding through to a broader range of goods prices,” the Bank of Canada said. “The effects of these constraints on prices will likely take some time to work their way through, given existing supply backlogs.”While Canada’s economy had “considerable momentum” going into the fourth quarter, the central bank said that Omicron, along with “devastating floods” in British Columbia last month that cut off access to a key port, could hit economic activity. “(This) could weigh on growth by compounding supply chain disruptions and reducing demand for some services,” it said.The Canadian dollar was trading nearly unchanged at 1.2641 to the greenback, or 79.11 U.S. cents, after the decision, pulling back from its strongest level in nearly three weeks.”Some in the market were looking for a signal of an imminent rate hike and that’s conspicuously absent. As a result, the Canadian dollar dipped on the decision,” said Adam Button, chief currency analyst at Forexlive.Economists said the Canadian central bank was likely buying time until its January meeting, when it will update its economic forecasts, to get a clearer view of how Omicron and the B.C. flooding will impact economic activity.”For now, I think it’s a waiting game until the January forecasts as we assess more information on Omicron,” said Derek Holt, vice president of capital market economics at Scotiabank. Canada’s headline inflation has been above the central bank’s 1%-to-3% control range for seven months, as global supply chain bottlenecks and high energy prices fueled price acceleration. The Bank of Canada reiterated that it expects inflation to remain elevated in the first half of 2022, returning to its 2% target in the second half of the year.Money market rates eased between 8 and 10 basis points after the policy decision, with the market expecting the first hike in March or April, and five increases in total next year. [BOCWATCH] More

“It’s become increasingly clear that omicron is growing much faster than the previous delta variant,” Johnson said at a televised press conference on Wednesday, announcing the measures for England. It’s the “proportionate and responsible thing to do to move to Plan B,” he said.Johnson Apologizes Over Christmas Party as Covid Rules Loom (3)The activation of the so-called Plan B restrictions follows warnings that the new Covid-19 strain will overwhelm hospitals, given the U.K. has recorded a high daily caseload for months even before omicron emerged. Scotland, Wales and Northern Ireland already had tighter restrictions in place before Johnson’s announcement.While the new rules fall far short of the lockdowns imposed previously, they still represent a significant change in approach and are politically risky for Johnson. The government had hoped an accelerated program of vaccine booster shots would mean no new restrictions would be needed over the Christmas period, after festivities were banned for many households last year.The timing is also sensitive as Johnson’s government struggles to handle the backlash over allegations his officials held a rule-breaking party in his Downing Street office last Christmas, which has provoked a public outcry. Johnson’s press secretary on Wednesday denied he attended the event last December, but the prime minister apologized in the House of Commons on Wednesday after a video emerged showing key aides joking about a party. One of them, Allegra Stratton, later offered her resignation in a tearful statement.The saga has angered even MPs in Johnson’s Conservative Party, one of whom accused him of using tougher Covid rules as a “diversionary tactic.”Johnson had previously said he would wait to see evidence of Omicron’s impact on hospitalizations and deaths before reviewing Britain’s pandemic rules. Wednesday’s announcement comes as the U.K. recorded 131 new confirmed cases of the omicron variant, bringing the total to 568. Neil Ferguson, a government scientific advisor whose modeling led to the first pandemic lockdown, said Wednesday that the incidence of the omicron strain is doubling every two to three days in Britain, meaning it will likely become the dominant variant before Christmas.(Updates with Plan B measures below third paragraph)©2021 Bloomberg L.P. More

Malawi’s former finance minister and ex-central bank governor have been arrested for allegedly misleading the IMF over the southern African country’s compliance with a bailout. Joseph Mwanamvekha and Dalitso Kabambe, respectively the finance minister and head of the central bank until last year, are suspected of having “procured and masterminded” the falsification of information given to the IMF about Malawi’s international reserves for a programme that ended in 2020, Malawian police said in a statement on Wednesday.Mwanamvekha and Kabambe served under Peter Mutharika, who was unseated as president by Lazarus Chakwera last year after the rerun of a fraudulent poll known as the “Tipp-Ex election” because of the way results were allegedly doctored. Chakwera’s government last year withdrew from a $110m extended credit facility that Malawi had negotiated with the IMF in 2018 in order to seek a fresh loan. But beyond an emergency loan during the pandemic, the state is yet to secure another bailout in a country beset by corruption, unsustainable debts and persistent poverty. Last month, protests broke out in cities over the high cost of living, adding to the pressure on Chakwera.The IMF said that Malawi was seeking a new bailout “that is better aligned with the current administration’s development agenda” and that the government had pledged a special audit of the country’s foreign exchange reserves in connection with the misreporting.Abebe Aemro Selassie, director of the IMF’s African department, said in October that the fund’s staff were working with the government to understand “a misreporting case that seemed to have taken place during the previous IMF-supported program”.“The IMF takes misreporting cases seriously and, in this regard, I appreciate the authorities’ efforts in delivering on the corrective efforts,” he added.Scandals over countries misreporting important information to the IMF are not unknown, but they rarely lead to former finance officials being arrested. This year, the IMF’s board reviewed inaccuracies by Iraq in relation to information about its compliance with a 2016 bailout. A senior official in Malawi’s justice ministry told the Financial Times that the alleged falsification took place between 2017 and 2020.Mwanamvekha and Kabambe are high-profile members of Mutharika’s Democratic Progressive party and potential successors as leader. Mwanamveka has previously denied any misrepresentation of financial information while he was minister. He and Kabambe could not be reached for comment on Wednesday. They have not been formally charged or appeared in court. The former ruling party has accused Chakwera’s government of using anti-graft investigations to persecute the opposition.“We do not want to believe that those arrests are politically motivated, aimed at silencing the opposition. If they are political, it’s yet another sad day in the history of this nation,” the former ruling party said in a statement. Mwanamveka is also facing questioning over his alleged involvement in the 2015 sale of a state-owned bank to a businessman with strong ties to the former ruling party. He has denied any wrongdoing. More

The negative side-effects of the European Central Bank’s bond-buying are increasing while its benefits are fading, one of its senior executives has said, warning that the policy is inflating asset prices and creating risks of financial instability.Isabel Schnabel, the ECB executive responsible for market operations, said asset purchases were “an important tool” during times of market turmoil or recession, “but their cost-benefit ratio deteriorates as the economy gains ground”.Bond purchases increased “moral hazard” by making investors reliant on them, Schnabel said, adding they may cause “excessive risk taking and overvaluations”, as well as creating a shortage of sovereign bonds in some countries such as Germany.Her comments are the latest signal that the ECB may only commit to maintaining its bond purchases for a short period when its governing council meets next week to decide on how much stimulus to provide next year. The central bank is expected to announce that it will stop new asset purchases in March under its €1.85tn Pandemic Emergency Purchase Programme (PEPP), launched last year in response to the pandemic.

Analysts have predicted that the ECB will cushion the impact on markets by expanding another, longer-standing asset purchase programme that it has kept running alongside PEPP. But the ECB may only commit to continue these purchases for a few months after March.The decision has been complicated by the surge in eurozone inflation to a record high of 4.9 per cent in November. The ECB is almost certain to raise its 2022 inflation forecast to well above its 2 per cent target next week, making it harder to justify continuing to buy large amounts of bonds.“By gradually shifting the policy mix away from net asset purchases when the monetary policy objectives are within reach, central banks can mitigate financial stability risks effectively,” Schnabel said.Since the ECB started buying bonds in 2015, it has built up a €4.6tn portfolio of assets. Analysts worry that any sign of a “hawkish” shift to withdraw stimulus earlier than expected could trigger a sell-off in eurozone bond markets. Schnabel said “the euro area remains vulnerable to fragmentation” and any “unexpected policy adjustments” could cause “changes in financing conditions that are sharper than intended”. She added that the ECB could benefit from having “a credible backstop that commits to counter such risks of fragmentation”. Other ECB policymakers have suggested that the ECB could keep the option open of restarting asset purchases under the PEPP, if needed, to counter market disruption. Schnabel said the scheme, which gives the bank extra flexibility in the timing and type of purchases, had “effectively provided such a backstop function over the course of the pandemic”. The German economics professor, who joined the ECB board almost two years ago, rebuffed the idea that the bloc’s central bank could raise interest rates before stopping asset purchases.She also said there was little point in raising interest rates in response to the “adverse supply-side shocks” that have pushed inflation above the ECB’s target this year. This would “risk choking the recovery and, given the long lags in transmission, exert downward pressure on inflation at a time when the shocks are likely to have already faded”, she said. More

The writer is co-chair of the African Union, Africa Vaccine Delivery Alliance, and former chief humanitarian co-ordinator of NigeriaIn the race between variants and vaccines, the emergence of Omicron could be the defining moment of this pandemic. This virus is waging war on all of us — battering our bodies, economies and societies. Some continents are faring worse than others, Africa in particular. Just this week, South African president Cyril Ramaphosa accused rich countries of creating a “vaccine apartheid” by hoarding jabs they didn’t need and giving poorer countries only “crumbs from their table”.To win the war, we must fight on all fronts through diagnostics, therapeutics, and vaccines. Just as multilateralism was forged in the aftermath of world war two, Covid-19 requires a deconstruction of old ways of thinking and a new perspective on our future. The task is urgent. If we do not start now, we will have to battle this virus beyond Omicron to Omega. The idea that low vaccination rates across Africa — where less than eight per cent of the total 1.3bn population is fully vaccinated — are due to hesitancy rather than supply is false and simplistic.We are experiencing the wider impacts of the virus everywhere. Global economic growth and trade has been damped, interest rates are expected to rise, commodity prices are volatile and macroeconomic uncertainty is contributing to debt crises. But while developed nations are able to implement safety nets, such as furlough schemes, low-income countries can provide little or no ballast for their citizens. Countries such as Uganda and Mozambique are suffering rising rates of poverty and inequality, with the last 20 years of development gains wiped out by the virus. The divergence between rich and poor nations is rising, and will continue to do so if new waves of infection, renewed travel bans and declining confidence inhibit recovery.Women and girls are bearing the brunt of the problems. Across Africa, girls are dropping out of school, thus widening the education gap, while early marriage has increased in Nigeria, and there is a rise in sexual and gender-based violence in South Africa. All this underscores the importance of promoting inclusion through recovery. The full effects of long Covid are not yet known but the impact on the young and economically active is already significant across the west. Re-building requires a healthy, educated labour force. Do unvaccinated populations in lower-income countries have any real chance of reaping a demographic dividend? A demographic disaster may be more likely.The consequences of countries in the global north acting purely in their own national interests are dire. Decisions rooted in politics rather than science have led to reactive policies such as travel bans and hoarding vaccines, which isolate less privileged countries in unnecessary and biased ways. These decisions are being made in the absence of comprehensive data on Omicron. To reverse the backward slide into greater poverty and economic instability, we need to construct global institutions that can support those countries in the global south which have been left behind. Organisations such as the G20 need greater inclusivity in their decision-making. More people should be invited to the top table to discuss who can travel and who is banned, who is vaccinated on what timescale, and ultimately who lives and who dies. We can start by distributing vaccines more effectively around the world, sharing production technology and implementing intellectual property waivers to allow local manufacture. Lifting the asymmetric travel restrictions that disproportionately affect African countries must be done immediately. These actions will reduce inequities and strengthen the collective recovery. The time for global leaders to act responsibly is long overdue. More

The writer is a former World Bank president and author of ‘America in the World’In the aftermath of the recent video conference between US president Joe Biden and President Xi Jinping of China, Washington faces a dilemma: how to engage Beijing when Biden’s leading officials have declared that engagement has failed?US political opinion ranges from fearing China’s rise to warning of Beijing’s internal weaknesses, but either way, the prevailing consensus from both parties is to do battle.National Security Council strategists Jake Sullivan and Kurt Campbell sought during the run-up to the 2020 election to distance themselves from previous Clinton-Obama ties with China. And the NSC’s China expert, Rush Doshi, published a book this year preaching a doctrine of diplomatic predestination: China has had a decades-long plan to achieve global hegemony, leaving no prospect for the US to work with it.There is, however, a problem with such thinking, highlighted by the recent statement on China from US trade representative Katherine Tai. Tai concluded that neither trade discussions nor enforcement had worked, and that Donald Trump’s failed deal had fallen short. But she offered no idea of what the administration should do next.For ten months, the Biden team has deferred the question of China policy by pointing to efforts on the home front or taking steps to restore ties with allies. For example, the Aukus pact with Australia and the UK holds out the promise of deeper co-operation on defence technology and more allied nuclear submarines in the Pacific. The administration has also deferred to domestic politics. After the new team used rhetorical blasts to demonstrate “toughness”, China reciprocated. Substantive exchanges withered; relations spiralled downward.When Biden recognised the dangers of deepening antagonism, he reached out to Xi with an a la carte approach, suggesting talks about climate. Xi delayed because he faced a sensitive central committee plenum on the path to his third term. More important, Xi was signalling to Washington that Beijing wanted a comprehensive approach to Sino-American relations.The eventual Biden-Xi meeting did not produce a peace agreement or even a ceasefire; it was more of a pause. The Chinese asserted their framework of principles, priorities, points of consensus and Taiwan. For their part, Biden’s strategists could say what they did not want — containment, a cold war and conflict over Taiwan — but have been afraid to say what they do expect from relations. They are just reactive.John Kerry, the US special presidential envoy for climate, has carved out one exception to the non-engagement policy: he recognised that a successful Biden climate policy depended on co-operation with China. Biden must now decide whether to build upon his dialogue with Xi. The US and China should be exploring possible mutual interests — climate and carbon; recovery from the pandemic and future biological security; trade reciprocity and rules in a new world of industrial policies; international financial flows and resilience to inevitable shocks; growth in developing economies, including debt restructurings; mutual deterrence and security, especially in the Indo-Pacific; and the management of technology and data decoupling. The president should complement that agenda by building US military capacities and speaking out about human rights, although the impact of his words will depend on America’s own example.Biden’s domestic foes will attack any move away from confrontation with China, but he will have to choose between indulging their fears or achieving results. It is time for a debate over US objectives with China — other than regime change.The US needs to recognise that the other side gets a vote, too. I suspect that the continuity in Trump-Biden policy has persuaded Beijing that the US cannot accept China’s rise. Stand-off will be the new constant. Xi believes the east is rising and the west declining. Instead of waiting for US decoupling, China will decouple on its own terms. Therefore, Xi has become less interested in co-operative dialogue; his priority lies in avoiding miscalculations and mistakes that could lead to conflict, especially as he prepares for next year’s important Chinese Communist party congress. Proponents of disengagement in Washington may get their wish because of China’s reactions. Biden will have to decide whether such a course best serves US interests as a world leader and makes America safer. More