Asia central banks, policymakers wade in to calm markets on Brexit vote

[HONG KONG] At least two Asian central banks were suspected of intervening in their currency markets on Friday, according to traders, as global financial markets went into a tailspin after Britain voted to leave the European Union in a historic vote.

Multiple traders said the Bank of Korea was thought to have sold US dollars to curb the won's fall as the local currency dropped, while the Reserve Bank of India likely sold US dollars through state-owned banks to prevent the rupee from falling further. An official at the Bank of Korea declined to comment.

A senior policymaker aware of the Reserve Bank of India's plans for Brexit-related market management said that the central bank is "prepared to deal with any volatility."

Separately, Japan's finance minister Taro Aso said he is carefully monitoring market developments and will respond as and when needed in the currency markets.

A statement from the G7 group of leading industrial economies was expected on Friday.

The yen surging to its strongest levels against the US dollar in two-and-a-half years, briefly breaking through the 100-yen-to-the-dollar level. Sterling suffered its biggest one-day fall of more than 9 per cent against the US dollar, hitting its lowest level in three decades.

Japanese stocks sank, pushing the Nikkei 225 index down more than 8 per cent to its lowest since October 2014, and a similar decline in the Nikkei futures triggered circuit breakers.

Money markets were volatile. Fed fund futures effectively moved to pricing in a tiny US rate cut from a rate increase in July.

Japan's deputy chief cabinet secretary Hiroshige Seko told reporters the government was worried about market moves, saying sudden shifts because of the British vote were undesirable.

The yen's strength due to its safe-haven status has been a frustration for Japanese authorities, who want a weaker currency to support exports and the economy. But they have been unable to garner support for intervention to weaken it from other major economies, most notably the United States.

The 100-yen-per-dollar level has been seen as a pivotal point to test the patience of Japan's monetary officials on intervention.

Morgan Stanley expects the US dollar to fall to 90 yen as investors seek the Japanese currency out as a relative safe haven, and a further 15-20 per cent downside for European equities from current levels.

The Australian dollar, often sold off in times of heightened market stress, fell heavily against the dollar and the yen.

Traditional stress markers such as interbank US dollar funding rates in Singapore and Hong Kong were broadly steady, but treasury bill and front end government bond yields fell.

"Because of this matter, we have made preparation in many aspects. We have reserved sufficient liquidity and we are able to handle in different situations," Hong Kong financial secretary John Tsang told reporters in the airport on Friday morning before he flew out to Beijing.

The Hong Kong Monetary Authority has asked banks to maintain ample cash conditions with them. No unscheduled monetary liquidity injection operations have been taken so far, according to an HKMA spokeswoman.

The People's Bank of China injected 170 billion yuan (S$35.27 billion) on Friday, taking the net injection for the week to 340 billion yuan, the biggest in two months.

But that was seen more about averting a cash squeeze at the end of the half year next week, as has happened previously, rather than responding to the Brexit vote.

Still, the yuan fell to its weakest level against the US dollar since January 2011 while its offshore counterpart slipped to its weakest level in more than four months.

The Philippines' central bank said on Friday it was closely monitoring the foreign exchange market and remains prepared to act to ensure orderly transactions and smooth volatility.

South Korean vice finance minister Choi Sang Mok said after a meeting with senior finance officials that Seoul was ready to steady the market if volatility seemed overdone.

REUTERS

For more coverage of the EU referendum, visit bt.sg/BrexiT