BoE’s Carney signals rate cut on Brexit prospects

Governor Mark Carney of the Bank of England has warned the nation's commercial banks and other financial institutions of a possible rate cut on prospects of Britain’s exit from the European Union. He had earlier reiterated the possible risks to growth and development that pose to the union in such an instance.

 Banks have been informed to check their balance sheets, if at all they can withstand a rate cut, anytime soon. Britain’s possible exit, to be decided on Jun 23rd, represents the biggest risk that would nail down on the union’s future, Carney said in his speech.

 The Governor’s statement came in line with his undertaking in March that it would create provisions to boost liquidity in the money market through additional auctions, to avert possible liquidity crunch after a sudden Brexit and nullify any tough situation for banks in the near term.

 While, a rate cut would be a control instrument to a possible credit crunch amid maintaining the purchasing power amongst consumers, Chancellor George Osborne argues that exiting the European Union would add to the mortgage pressure, making it more expensive, thus impacting the housing sector.

The upcoming May inflation report is expected to envisage the economic, monetary and fiscal implications of a possible Brexit and chances of a rate cut, if it so happens. In addition, it may also contain warnings, that came from the Chancellor, in contrast to expectations of lower borrowing costs, which may push more voters in favor of a Brexit.

At 6:12GMT, EUR/USD was down 0.02% to 1.1380 compared to previous close of 1.1382