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ECB ready to use all tools if Brexit vote shocks market: Rimsevics

Friday, June 10, 2016 - 22:12
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The European Central Bank is ready to use all tools, starting with its currency swap lines with the Bank of England, if Britain votes to leave the European Union and shocks financial markets, ECB rate setter Ilmars Rimsevics said on Friday.

[ RIGA] The European Central Bank is ready to use all tools, starting with its currency swap lines with the Bank of England, if Britain votes to leave the European Union and shocks financial markets, ECB rate setter Ilmars Rimsevics said on Friday.

With Britain's EU membership on a knife edge, investors have been fretting about the possible impact on currencies, banks and the financial system at large if Britons vote to leave the bloc at a referendum on June 23.

Rimsevics, who sits on the ECB's decision-making body and heads the Latvian central bank, said the ECB would be ready to step in if needed. "All the necessary tools are at disposal of the European Central Bank at the moment and, if it is necessary to use them, then the European Central Bank will use them," he told a news conference.

ECB President Mario Draghi said last week the ECB was ready for any outcome from the referendum and hoped Britain stayed. But he declined to elaborate on what the banks had done to prepare for a "Brexit".

The ECB is already buying 80 billion euros(S$122.7 billion) worth of assets every month, keeping interest rates at a record low and giving banks ultra-cheap loans to support growth in the euro zone.

The ECB and the Bank of England have had swap lines in place for years, allowing UK banks and clearing houses to borrow in euros from the Bank of England and vice versa.

These emergency facilities are designed for times of stress, when firms may struggle to source foreign currencies from private lenders, and Rimsevics said they could be used if the UK vote sends shockwaves through currency markets. "Especially if it (the result of the referendum) is negative and there is some kind of necessity, there are some kind of shocks, then, of course, all those lines will operate," he said.

The pound has been on a roller-coaster in recent weeks and the cost of insuring against further swings has soared as investors fear a sharp selloff if Britain decides to leave.

REUTERS