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Global CBs Raise Cash Offer

Global CBs Raise Cash OfferGlobal CBs Raise Cash Offer

Central banks across the world offered the financial system fresh funds and intervened in currency markets, in an effort to reassure investors sent into panic by the UK’s vote to leave the European Union.

After a majority of Britons voted to end their 43-year membership of the EU in a referendum, the Bank of England, the European Central Bank and the Bank of Japan issued statements stressing the availability of liquidity to keep the banking system running.

The BoJ led the Swiss National Bank and the Danish central bank in displaying readiness to sell their local currencies to cap gains caused by investors seeking haven from the turmoil, Bloomberg reported.

The Group of Seven nations are said to plan to confer later, and officials from about 60 global monetary authorities will meet this weekend in Basel, Switzerland. Beyond the initial gyrations, central banks will face questions over how they can support growth and hit inflation targets at a time when policy instruments are already stretched, and a new threat to growth hangs over Europe in particular.

  Market Reaction

Italian and Spanish bonds fell and German bunds climbed as investors shunned higher yielding debt in favor of haven assets. The additional yield investors demand to hold Spain’s 10-year bonds over equivalent-maturity bunds rose to the highest since 2014, while Italy’s yield spread widened to the most in almost a year. US treasury yields fell the most in seven years.

In a liquidity operation on Friday not related to the Brexit vote, the ECB allotted €399 billion ($442 billion) in four-year loans to banks in the 19-nation eurozone. After a conference call of the governing council, the Frankfurt-based ECB said it will “continue to fulfill its responsibilities to ensure price stability and financial stability in the eurozone.”

“The ECB has prepared for this contingency in close contact with the banks that it supervises and considers that the eurozone banking system is resilient in terms of capital and liquidity,” according to a statement published on the institution’s website.

  Curbing Volatility

International Monetary Fund Managing Director Christine Lagarde said the Washington-based lender “strongly” supports commitments by the ECB and the BOE to supply liquidity and curtail market volatility. “We will continue to monitor developments closely and stand ready to support our members as needed.”

South Korea and India were among those reported to have intervened in an effort to smooth trading in their currencies, while analysts said Denmark probably did the same and those including Singapore could step in. Kenya’s central bank said it was ready to temper market volatility, while counterparts including Thailand said they were monitoring the situation in their locations.

 

Financialtribune.com