Thu, Jul 21, 2016 - Page 10 News List

Forex markets stable after ‘Brexit’: IMF

NO’DISORDERLY’CONDUCT:IMF chief economist Maury Obstfeld said that flexible exchange rates have acted as a buffer to shocks such as the ‘Brexit’ vote


Foreign exchange markets are not “disorderly” in the wake of Britain’s vote to leave the EU and there is no need for the G20 to broadly agree to tame them, the IMF’s chief economist said on Tuesday.

A number of currencies have fallen sharply against the US dollar since Britain’s June 23 EU referendum, including the British pound, the euro and the yuan, while the yen has also seen more volatility as well.

IMF chief economist Maury Obstfeld said flexible exchange rates have acted as a buffer to shocks such as the “Brexit” vote and most often provide important price signals that guide economic activity, allowing countries to pursue monetary and fiscal policies suited to their economic needs.

“So I sort of reject the premise that volatility needs to be tamed,” Obstfeld said at a news conference, adding that a G20 repeat of the 1985 Plaza Accord deal to stabilize currency rates was “simply not something that’s going to happen.”

He also said another Bank of Japan intervention to stem excessive yen strength — Japanese officials have described foreign exchange markets as “nervous” since the Brexit vote — would not be “necessary or useful” in boosting Japan’s moribund economy.

“We have seen some currency volatility in recent weeks, but we would not characterize conditions in the yen market as being disorderly conditions,” Obstfeld said, adding that Japan was better off pursuing policies to increase wages, add fiscal stimulus and implement structural economic reforms.

“We don’t view intervention as being a necessary or useful part of that package,” he said.

The IMF earlier on Tuesday cut its global growth forecasts to 3.1 percent this year and 3.4 percent for next year because of the uncertainty over trade, investment and market confidence created by the Brexit vote. Both estimates are 0.1 percentage points lower than the bank’s previous forecast in April.

The IMF downgraded its forecast for US growth this year to 2.2 percent, but raised its forecast for China’s growth this year to 6.6 percent.

In more gloom, the IMF downgraded its growth forecast for the British economy by 0.2 percentage points to 1.7 percent this year. It also slashed the nation’s growth estimate by 0.9 percentage points to 1.3 percent next year.

Brexit and its aftermath are to be a key topic on the agenda when G20 finance ministers and central bank governors meet this weekend in Chengdu, China, amid calls for measures to boost growth and ensure financial market stability.

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