LONDON, December 6, Reuters - The newly discovered Omicron variant shows policymakers and financial markets can not lower their guard on COVID 19 and will have to calibrate their policies carefully, the Bank for International Settlements said on Monday.
Swiss-based BIS said Omicron had already caused falls in stock markets and ramped up uncertainty, and was dubbed the central bank to the world's central banks due to its regular gatherings of decision makers.
Claudio Borio, head of the BIS' Monetary Economic Department, told reporters that the emergence of Omicron indicates that we should not lower our guard. This is the latest reminder that we need to be watchful. Financial conditions have already been tightening for many emerging market economies, according to the BIS report. The government bond yields, a proxy for the cost of borrowing, have risen, especially outside emerging Asia, while a broad-based weakness of EM currencies has compounded inflationary pressures.
Omicron could exacerbate supply-chain bottlenecks in the short run and have an impact on economic activity in the first quarter of 2022, Borio said.
The trade-offs the central banks are facing are more complicated than before, he said, although dealing with such complications was something policymakers were now familiar with.
The BIS report also contained analyses on specific market issues.
In one of the Swiss-based forum said bank-like rules were needed to stop investment funds from destabilising finance in market crises.
It warned policymakers that they could fall behind the curve in regulating entities such as hedge funds, pension funds, insurance companies and money market funds, which collectively account for half of global financial activity.
Asia's emerging economies should make currency hedging more flexible as growing dollar investments make the region more susceptible to currency swings, as well as improve oversight of foreign exchange liquidity risks.
Despite the headwinds facing emerging markets and the challenge that the BIS said of the property sector, where developers such as China Evergrande have run into problems, the yuan currency has stayed stable despite the fact that the yuan currency has stayed stable despite the challenges it has faced, such as China Evergrande.