Central banks move to calm jitters, steady currency markets

Some of the world’s biggest central banks offered financial backstops to soothe plunging markets on Friday after Britain voted to leave the EU, and some intervened in currency markets as they worried that the volatility could hit growth.

The Bank of England offered to provide more than 250 billion pounds ($347 billion) plus “substantial” access to foreign currency to ease any squeeze in markets and Governor Mark Carney said it would consider more measures if needed.

The U.S. Federal Reserve said it was ready to provide dollar liquidity through its existing swap lines with central banks, “as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy”.

“The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks,” it added in a statement.

The European Central Bank said it could provide additional liquidity and would protect euro zone financial stability, while the People’s Bank of China pledged to keep the yuan basically stable and said it would maintain ample liquidity. The shock referendum result dented Britain’s economic growth prospects and sent the value of the pound down by as much as 10 per cent to a 31-year low against the dollar.

The outcome also raised questions about the future of the European Union itself and European shares tumbled almost 10 per cent before recovering some ground.

Market liquidity

With memories of the 2007-09 financial crisis still fresh, central banks are concerned that market liquidity could quickly dry up, depriving the real economy of access to cash and financial instruments. “The Bank [of England] will not hesitate to take additional measures as required as those markets adjust and the U.K. economy moves forward,” Mr. Carney said, warning that economic volatility can be expected as Britain adjusts.

The British economy was already slowing and Mr. Carney had previously warned that it could go into recession in the event of a vote to leave the EU.

Ratings agency Fitch said Britain faces weaker growth and investment prospects while its status as a major international banking hub could be damaged as some businesses shift to the Euopean Union.

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Printable version | Oct 24, 2020 8:40:11 AM |

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