In the aftermath of this quarter’s market rattling events, such as Donald Trump’s election win, central banks “took a back seat,” the Bank of International Settlements (BIS) said, describing the trend as “healthy.”
The Switzerland-based BIS, known as the central bank of central banks, made the comments in its quarterly review of global economic trends.
BIS monetary and economic department chief, Claudio Borio, noted that markets were caught “completely wrong-footed,” by the US vote which swept political novice and former reality TV star Trump into office.
A series of crisis indicators were immediately triggered, including a plunge in US Treasury yields and a spike in the price of gold.
But for Borio, the “stand out” development in the immediate post-poll uncertainty was that markets steadied without central bank involvement.
“It was not central bank utterances or policy decisions that, fundamentally, triggered the market moves,” Borio said in the statement.
“It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks’ every word and deed. In itself, this is healthy,” he added.
Borio struck a broadly optimistic note that “markets functioned smoothly despite the price gyrations” of the last quarter, drawing a comparison to the similar aftermath of June’s Brexit vote.
Aside from Trump’s stunning election win, the BIS expert also praised the market’s response to the October 7 pound-sterling flash crash that saw Britain’s currency drop nine percent against the dollar in a matter of seconds for reasons that remain largely unclear.
Borio stressed that the pound recovered those losses without the need for central bank intervention.
Bank of England Chief Mark Carney has asked the BIS to investigate the crash’s causes.
Addressing the pound’s dramatic plunge, Borio said “as long as such moves remain self-contained and do not threaten market functioning or the soundness of financial institutions, they are not a source of much concern: we may need to get used to them.”
Also on Monday, the ECB said it would open an inquiry after its refusal to extend a deadline for Italy’s troubled Monte dei Paschi di Siena bank (BMPS) was leaked to the media before the lender was formally notified of the decision.
“An internal inquiry will be launched,” said a spokesman for the Frankfurt-based European Central Bank, confirming Italian media reports.
The spokesman declined to give further details.
Shares in BMPS, the world’s oldest bank, tumbled by more than 10 percent Friday on reports that the ECB’s supervisory board had denied it more time to raise the cash it needs to avoid being wound down.
The ECB had declined to comment on Friday, while BMPS itself said it had received no official communication on the matter.
Saddled with bad debts, BMPS is trying to pull off a five billion euro ($5.38 billion) equity injection and had requested the extension of a deadline to find the money from the end of December to Jan. 20.
The ailing lender had argued that the political instability created by Prime Minister Matteo Renzi’s resignation had left investors reluctant to commit funds.
But according to media reports, citing unnamed sources, the ECB board ruled that the extra weeks would be of little use in turning around the historic bank.
The ECB’s decision has piled pressure on the Italian government to step in should BMPS fail to raise the necessary funds from private investors.

Source:  Arab News