PBOC Says It Has Watched Brexit, Made Plans to Respond to Result

  • PBOC said it has noticed financial market reactions to Brexit
  • China to improve communication with other central banks

China’s central bank said it has made plans to cope with the result of the Brexit referendum, in which U.K. voters decided to leave the European Union.

The People’s Bank of China has closely watched the progress of the vote, noticed the reaction in financial markets to the result and has plans to cope with it, according to a statement posted on the bank’s website on Friday. The central bank didn’t specify any actions it might take.

"We are going to continue prudent monetary policy, use multiple monetary-policy tools and keep reasonably ample liquidity and maintain financial stability," the PBOC said in the statement. "We will continue to improve the market-based mechanism of yuan exchange-rate formation, and keep the yuan exchange rate basically stable at a reasonable and balanced level."

The PBOC also said it will strengthen communication and coordination with other central banks, monetary authorities and international financial organizations.

"We expect that the yuan would continue to weaken but only mildly against the dollar," Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong, wrote in a note Friday. On major monetary policy, Pang said she expects cuts at some point to banks’ required reserve ratio and the benchmark lending rate.

Pang also said that "the central bank may do minor policy relaxations via the open market operations to inject more liquidity in the interbank market," and could guide lower the Shanghai interbank offered rate.

— With assistance by Xiaoqing Pi

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