ECB happy to stay put after Brexit vote as markets regain poise: sources
By Francesco Canepa and Balazs Koranyi
FRANKFURT (Reuters) - The European Central Bank is in no rush to ease its monetary policy in response Britain's vote to leave the European Union, taking comfort in a calmer-than-feared market reaction, several sources have told Reuters.
The Brexit vote has hit the shares of euro zone banks and is likely to act as a drag on the euro zone economy, as ECB President Mario Draghi told EU leaders on Tuesday. It is also raising fundamental questions about the future of the EU.
But conversations with around a dozen officials familiar with the ECB's thinking showed that the bank found some reassurance in the market rebound this week and was happy to take a wait-and-see stance, given the lack of hard evidence about the actual impact of Brexit.
Emergency swap lines designed to provide euros to UK banks in case of stress had not been activated and, contrary to what had happened during the 2008 crash, financial markets had functioned smoothly despite heavy losses in the pound and some shares, the sources, who asked not to be named, said.
They stressed the ECB's willingness to provide more stimulus if the inflation outlook worsens but cautioned the UK vote was raising political questions that were for EU governments and institutions, rather than the central bank, to answer.
"This is a political problem not a monetary phenomenon," one of the sources said. "We could act, we have the tools, but that would not solve the broader problem and for now, every estimate about the actual impact of Brexit is nothing but guesswork."
The officials added it was too early to assess the impact of the referendum on investor and consumer confidence - the most immediate transmission channel - and the bank would be in a better position to make a call on that when it gets updated staff forecasts in September.
If markets continued in the same, calm vein in the run up to the ECB's July 21 policy meeting, the most to expect could be verbal reassurance that the bank stands ready to do more if needed, conversations with the sources showed. Continued...