By Julie Gordon

OTTAWA, Reuters – Omicron’s wrath could delay the Bank of Canada raising rates on Wednesday for the first time in 2018.

Canada’s central banks will announce their first major policy decisions of 2022. This comes at a moment when consumer prices have risen at the fastest rate in over 30 years, and an Omicron-fueled wave is beginning to recede.

According to money market analysts, there is an approximately 65% chance that the Bank will raise the overnight interest rate from the low record 0.25% to 0.5%. Reuters survey respondents are less confident, 77% of whom see the central bank maintaining its position until March. [BOCWATCH]

Stephen Brown, senior Canada economist with Capital Economics said that it was a “toss-up really.” “It’s clear that the BoC was becoming increasingly concerned about inflation. However, in terms of what type of hints a central bank would normally send before it hikes, we don’t have them.

It doesn’t matter when it happens, the increase is likely to be one of many in 2019. Brown expects to see four more increases of up to 1.25 percent in 2022. To stem spiralling price increases on everything, from new appliances to housing, the money markets are pricing in 6 to 1.75%. [BOCWATCH]

Canada’s December inflation rate was 4.8%. It is now the highest reading since September 1991. Also, it’s the ninth consecutive month that Canada has been above Canada’s 1-3% limit. This has been the lowest inflation rate since 1991 when Canada’s central bank set its goal of 2%.

In December, the BoC extended that goal. Tiff Macklem, the Governor of Canada said two days later that the economy had been “substantially” improved and that the Bank wasn’t satisfied with its current inflation path.

It was clear that tightening was on the horizon, stated Derek Holt of Scotiabank’s head for capital markets economics. This is further supported by recent survey data which shows consumers and businesses are expecting inflation to continue rising.

Holt stated that “at this stage in the cycle the risks of choosing the wrong fork on the road are extraordinarily high.” He expects several hikes in order to raise the benchmark to 2%.

To tighten the curve too often and it will invert and eventually the economy tankes, he said. He said that if you don’t tighten enough, the economy will eventually tank due to rising imbalances. This is because of the danger combination of house prices and runaway inflation.

Omicron is an Omicron variant. Canada saw a massive increase in daily case numbers, exceeding testing capacity. Provinces were forced to put restrictions back on the job market.

However, some Bank watchers consider the risk exaggerated.

Simon Harvey is head of FX analysis at Monex Europe, Monex Canada. “Omicron seems like the best way to get out from jail,” he said.

“Near term growth risks do not outweigh rising inflationary pressures. This is especially true if there are downside risks for potential growth.”

Investors expect the U.S. Federal Reserve to meet on Wednesday, and signal an increase in interest rates for March.