Global central banks rushed Friday to deal with financial markets fallout from Britain's shock referendum decision to quit the European Union. Britain has voted to leave the EU by 52 percent to 48 percent, sparking markets turmoil and the resignation of Prime Minister David Cameron - who had backed the failed remain campaign.
In reaction to chaotic trade, the Bank of England announced it was ready to pump £250 billion ($370 billion, 326 billion euros) to aid the smooth running of markets, declaring it will take "all necessary steps" to ensure financial and monetary stability. "As a backstop, and to support the functioning of markets, the Bank of England stands ready to provide more than £250 billion of additional funds through its normal facilities," BoE governor Mark Carney said in a televised statement following the Brexit vote.
"The BoE is also able to provide substantial liquidity in foreign currency, if required," he added. The European Central Bank also threw its concerns into the mix, adding it was on stand-by to open the liquidity floodgates if needed. "Following the outcome of the UK referendum, the ECB is closely monitoring financial markets and is in close contact with other central banks," it said in a separate statement.
"The ECB stands ready to provide additional liquidity, if needed, in euro and foreign currencies." Britain's decision to leave the EU - following a bitterly-contested referendum - has rocked global stock markets and sent the pound crashing to its lowest level in more than three decades. Brexit could also force the BoE to act urgently to prop up the British pound with intervention in the foreign exchange market.
"Sterling has.... (faced) its biggest single-day crash in about 30 years, and certainly displaying a level of volatility which could trigger an official intervention by the Bank of England in the currency market," said City Index analyst Ken Odeluga. The shock referendum outcome - which confounded recent opinion polls indicating a Remain victory - also sent oil prices tumbling more than $2.5 per barrel on fears that economic fallout could weigh on future energy demand. However, the price of gold - traditionally seen as a safe haven - surged to a two-year peak as investors sought shelter from economic turmoil.
"The Bank of England is monitoring developments closely," it added in a brief statement. "The BoE will take all necessary steps to meet its responsibilities for monetary and financial stability." It added that it had already "undertaken extensive contingency planning" and was working closely with Britain's Treasury as well as with other domestic authorities and central banks. The announcement came after the Bank of Japan said it stood ready to work with other major central banks to inject ample liquidity to counter wild volatility in markets.
The central bank governors of the G7 nations, which includes the United States, Canada and Japan as well as Britain, France, Germany and Italy, said in a joint statement "stand ready" to provide needed liquidity to markets. They said they recognise that "excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability."
Switzerland's central bank added it had "intervened" in the foreign exchange market to stabilise the Swiss franc, considered a safe haven currency, following the Brexit verdict. "The Swiss National Bank (SNB) has intervened to keep a lid on the franc after a flight to safety following the Brexit vote and says it will remain active in the market," said ETX Capital trader Joe Rundle. "If the SNB is taking action it might not be long before the Bank of England or even the ECB decides to step in, too. "After the vote, who knows where markets are going," he added.
Comments
Comments are closed.