Uncertainty Is the Only Thing That Is Certain for The World’s Central Bankers

bis-tower-2From the immediate prospect of the UK leaving the European Union to the longer-term ramifications of aging populations, the major central banks across the globe are not able to decide on the next move.

Decision makers from various developed nations, including the UK, the US, Switzerland, and Japan all decided to keep monetary policy unchanged in June 2016 as they await the Brexit vote on June 23rd, 2016 and try to comprehend the comprehensive forces transforming the global economy.

Experts are not sure about the rates in the longer term. An aging society and lagging productivity development denoted that borrowing costs could be below historical normal levels.

The inaction by four of the most outstanding central banks raised concerns among investors that monetary policy makers are undecided in the face of a struggling international economy and distorted global financial markets.

That perception, combined with uncertainties about the fallout should the U.K. exit the EU, sent global stock prices slipping lower in the 3rd week of June 2016 and drove bond yields down, in certain cases into an unheard negative territory.

At present, investors are not willing to take any risk. Markets do not like the uncertainty.

Japan and Switzerland could possibly see an economically harmful increase in their currencies if the U.K. decides not to remain in the EU. The UK is also expected to face a currency crisis if it exits the EU. The central bank in the UK would be forced to raise interest rates to reinstate confidence in the pound.

Brexit is not the only uncertainty central bankers are worried about. The Fed in the US is trying to determine the best monetary policy strategy for an economy that is nearing full employment and where inflation is expected to come back to its 2% target.

The central bank in Japan has not made much progress in lifting the nation’s very low inflation rate.

All the uncertainties could have consequences for economic and financial scenarios in global financial markets. It would take an integrated effort by the prominent central banks to sustain economic growth.

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