What is central bank’s primary goal?

To ensure price stability. Some have other mandates too, like FED’s maximum employment.

What are they afraid of?

Uncontrollable inflation. (We are not considering deflation, since there are none experienced such for prolonged period, except may be Japan. Swiss could become the next,).

What they do to keep inflation in check?

They hike interest rates.

What’s the worst nightmare scenario?

Forcing to hike rates due to higher inflation at a time, when economy isn’t growing at all or in recession, known as stagflation.

That’s exactly what Bank of England (BOE) may face if Britons vote to exit the union.

An exit will trigger sharp drop in Pound Sterling, which will lead to higher import cost and higher inflation and at the same time economy may face recession largely due to corporate exodus and uncertainties associated with the exit, especially in trade deals front.

So far, BOE has announced several measures such as various Sterling auctions, foreign currency loans to make sure banks don’t run out of money.

So, even if BOE succeed in containing short term risks, it is likely to face major policy dilemma, whether to raise or not.

Two approaches are highly recommended.

One is to do nothing in policy front and let the adjustment take place. Other would be to temporary ignore inflation and introduce stimulus to boost growth, whereas Sterling drop in such case would support recovery.

Pound on the other hand has recovered lots of grounds on weaker Dollar, currently trading at 1.471.