Brexit impact hangs on policy makers’ next move: IMF

The Dollar Business Bureau

International Monetary Fund (IMF) Managing Director Christine Lagarde on Sunday said the fallout from Britain’s vote to exit the European Union (EU) hinges on what UK and EU policy makers do in coming days.

Speaking at a session at the Aspen Ideas Festival in Colorado, the IMF chief said, “At this point in time, policy makers, both in the UK and in Europe, are holding that level of uncertainty in their hands. And how they come out in the next few days is going to really drive the direction in which risk will go.”

After results from the referendum showed 51.9% of British voters had decided to leave the EU, the pound plunged, US treasuries surged and stocks tumbled across the globe. On Monday, pounds plunged further in early Asian trading.

"Despite that, there was no panic. There was a violent, brutal, immediate massive move. The pound went down by 10%. But there was no panic, and the central bankers did the job that they were prepared to do just in case," Lagarde said.

Last week, the IMF Chief had said the IMF would support commitments by the Bank of England (BoE) and European Central Bank to provide liquidity to the banking system and retrench financial volatility in the aftermath of Brexit. The IMF was closely monitoring developments to support its member countries if needed, she had said.

Prior to the referendum, the IMF had warned that Britain could slide into recession if it exits the EU. “Growth could slow sharply this year and the economy may shrink 0.8% in 2017,” it said in a report.

Lagarde also said that EU members will be required to “find the right equilibrium between being rigorous and being fair” in dealing with the UK, keeping in mind the probable "contagion effect" Brexit would have on other countries in the EU.