ECB sees shock from UK vote as largely contained

ASSOCIATED PRESS
FRANKFURT
Published 18.08.2016 21:42

Officials at the European Central Bank (ECB) saw the initial impact from Britain's vote to leave the EU as largely confined to that country despite much uncertainty about whether it would hurt the global economy in the future. That is the view contained in the written account of the eurozone central bank's July 21 rate-setting meeting, released yesterday. The ECB had left unchanged its stimulus policies, which include 80 billion euros a month in bond purchases and a benchmark interest rate of zero.

The officials sought to balance the need to reassure markets that they would add more stimulus if needed against ongoing uncertainty about how much the British vote would actually hurt the economy. The bank said it would wait to get more data from its staff's forecasts.

Members of the 15-member governing council wanted to make it clear they wouldn't stand idly by in case of trouble, without on the other hand raising expectations for more stimulus and "fostering undue expectations about the future course of monetary policy."

Financial markets had weathered the initial surprise from the vote to leave, the officials agreed. But they were concerned about the longer term impact on neighboring Europe, a major trade partner. Britain's exit from the EU and its tariff-less single market would require a renegotiation of trade relations, something that would likely take years, leaving uncertainty for businesses.

The ECB officials noted "that the uncertainty of the situation itself could affect the global economy in deeper and less predictable ways than through the direct trade channel."

The bank's wait-and-see stance contrasts with that of the U.S. Federal Reserve, which is looking to raise interest rates further from current very low levels. Minutes of the Fed's July 26-27 meeting indicated some officials thought another increase would soon be warranted. Others were unwilling to consider that. The Fed has put off further increases since a quarter-point hike in December to its key rate to a range of 0.25-0.50 percent. The ECB is in a different situation, with more moderate economic growth that is bringing down high unemployment more slowly than many would like. Some analysts think the ECB will eventually provide more stimulus on top of its bond purchases and extremely low interest rates, which include a negative rate of 0.4 percent on deposits left with it overnight by commercial banks.

Share on Facebook Share on Twitter
DAILY SABAH RECOMMENDS