Global banks await Brexit result to determine policies

National Bank of Kuwait (NBK)
National Bank of Kuwait (NBK)

KUWAIT, June 19 (KUNA) — Foreign exchange markets were dictated by meetings of the US, Japanese, Swiss and UK central banks this week, regarding the impact of the possible British exit from the UK after the June 23 referendum, said the National Bank of Kuwait (NBK) on Sunday.
The banks chose to leave policies unchanged fearing the referendum result would undo the impact of whatever policy was introduced. For the moment, status quo remains in markets, said NBK in its economic report.
The Bank of England’s Monetary Committee voted unanimously to leave the Official Bank Rate unchanged at 0.5 percent and maintain the stock of purchased assets financed by the issuance of central bank reserves at آ£375 billion, NBK said.
While also mentioning subdued inflation, the main driver for the decision comes from the looming referendum to leave the European Union. The Committee mentioned that while figures like consumer spending have been solid, potential referendum effects are making economic data releases more difficult to interpret, the report said.
NBK added that while growth in the United Kingdom’s major trading partners is expected to continue at a modest pace over the next three years, a vote to leave the EU could sharply depreciate the GBP, adversely affecting trade and productivity.
Furthermore, committee members said that leaving the EU would significantly alter the outlook for output and inflation, and therefore the appropriateness of monetary policy. However, the committee will take whatever action is needed, following the outcome of the referendum, to ensure inflation returns to the target over the appropriate horizon, NBK noted.
Meanwhile, Retail sales in the UK made another jump for the second month in a row as sales increased by 0.9 percent from a 1.3 percent increase in April. The figure was supported as prices of goods sold in the retail industry decreased by 2.8 percent compared to last year, NBK said.
As for the US economy, the Federal Open Market Committee (FOMC) voted to keep profits rate unchanged during a 2-day meeting held in Washington, concluded last Wednesday. The decision was made as a result of a weak performance by the job market and a slow rise in inflation rates, the report added.
However, FOMC currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation however, is expected to remain low in the near term before moving to its 2 percent goal over the medium term as energy prices improve.(end)