Britain’s exit poses risk to major economies, raises concern for central bankers

Major economies are staring at probable risk that lies ahead of the Brexit referendum on June 23 when Britain’s decision to stay or leave the European Union will be taken. Central bankers are feeling the pinch already as policy decisions remain gummed up by the pending decision on Brexit.

Federal Reserve Janet Yellen’s speech recently warned of possible repercussions if Britain votes to leave the EU, posing a serious danger not only to the United States but also to all major economies around the world, including India.

While Bank of England Governor Mark Carney remains cautious of a Brexit, he keeps worried on the turmoil that it would create on global financial markets, leading major indices and currencies to tumble the worst ever.

The risk alone is keeping central banks wary to delay policy rates post the June 23 referendum either to avoid tightening prematurely, in the case of the Fed or to keep stimulus available should it be needed later, as with the European Central Bank.

The Bank of Japan, scheduled to meet next week is seen by most economists holding off on a move next week, then expanding its easing in July. However, the key concern remains with the euro and pound sterling if 'leave' consensus wins and Britain gets separated from the European Union.

"Central bankers prefer to err on the cautious side," said Brunello Rosa, Economist, Roubini Global Economics LLC, London.

At a time when the International Monetary Fund is predicting world economic growth at just 3.2 percent, the Brexit concern will at large, hamper global demand amid continued weak inflation. Markets, will however, witness shock if the Britons vote to leave out of the EU.