(Bloomberg) -- The omicron virus strain could result in “some setback” to the Australian economy’s recovery from recent lockdowns and is likely to reinforce the central bank’s inclination to sit tight, according to Royal Bank of Canada.
“Given the delta experience, we would expect policy makers to assume the worst, move quickly, and take an overly cautious approach,” Su-Lin Ong, head of Australian economic and fixed-income strategy at RBC, said in a research note Monday. “A delay of further easing in restrictions and/or additional measures will be inevitable if omicron moves quickly in Australia.”
There may also be a delay in recently announced border reopenings, she said.
Global markets went into a tailspin late last week fearing the new strain of coronavirus, first identified in southern Africa, could herald a return to rolling lockdowns and border closures. Yields on Australian three-year government bonds slipped to as low as 0.85% Monday from a high of 1.28% in late October. Traders also pared bets on the pace of Reserve Bank interest-rate increases.
Australia’s east coast only reopened last month from protracted lockdowns to contain the delta variant of coronavirus. Recent domestic data point to “upside” to the recovery with buoyant consumers, increasingly optimistic businesses and a V-shaped bounce in the labor market likely to boost the central bank’s confidence that it’s on the right track, Ong said.
The RBA’s final meeting of the year on Dec. 7 is expected to see no change to monetary settings and it then breaks until February, when the board is due to review its A$4 billion ($2.9 billion) a week bond-buying program.
Some economists see the bank potentially scrapping the program then given the economy’s rapid bounce-back. Traders have been pricing in a first 15-basis point rate rise in May, taking the RBA’s cash rate to 0.25%, and then at least two more hikes over the rest of the year.
“A key risk to our positive outlook for 2022 is new C-19 strains, transmissibility, and vaccine efficacy,” Ong said. “The RBA will be of a similar view.”
With no expectation of change from the RBA next week, three other central bank meetings on the horizon will be more interesting “in the event omicron developments deteriorate,” Ong said.
“If so, will the Bank of England opt to stay steady again, the Federal Reserve stick to its current taper plans, and the European Central Bank repeat its dovish stance?”
©2021 Bloomberg L.P.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.