RBI maintaining a close vigil on Brexit volatility

Central bank says it will take all necessary steps to 'ensure orderly conditions in financial markets'

The Reserve Bank of India (RBI) on Wednesday said it was maintaining a close vigil on Brexit related developments and will take all necessary steps to smoothen out volatility in the market.

“In the run up to the referendum in the United Kingdom on its continuing in the European Union (“The Brexit”), uncertainty about the poll outcome has resulted in some amount of turbulence in global financial markets, including in India. The RBI is maintaining a close vigil on developments, and will take all necessary steps, including liquidity support, to ensure orderly conditions in financial markets,” the central bank said in a statement on its website.

Britain goes into a referendum on Wednesday to decide whether it would want to remain in the European Union.

Rupee has inched up in the last few days on Brexit fears and also because Rajan decided to leave the central bank. At 12.40 pm, rupee was trading at 67.50 a dollar level, but analysts fear if Brexit actually happens, the local currency may cross 70 a dollar.

Raghuram Rajan, governor of RBI, said on Monday that the central bank was prepared to face any volatility that may arise due to Brexit.

“Brexit can be quite damaging if it happens. Of course, we have factored in some probability of it happening. If it doesn’t happen, you could see some significant rebound. We are preparing for it and monitoring the markets. We have said earlier that we have three lines of defences -- good policy, we have pushed out the maturities of foreign borrowings and they are not significantly worrisome at this point, and finally we have plenty of reserves,” Rajan had said in an event at Mumbai. 

“We will do what it takes to moderate market volatility, but once the initial bouts of wave abate, people look for good fundamentals,” said Rajan.