CB Governor warns: More market volatility from Brexit

Businesses should expect capital markets to be more volatile in the months ahead with the uncertainty created by Britain’s vote to leave the European Union, Central Bank Governor Indrajith Coomaraswamy told a panel discussion on the impact of Brexit on business, organised by the Shippers’ Academy Colombo.

“After the initial shock, there has been a settling down of markets. But we need to be cautious. There will be volatility going forward. The British Pound fell in the immediate aftermath of the vote but then recovered,” he said. “The negotiations (on Britain leaving the EU) will be long. There will be news which would disturb the markets and can be a source of instability,” he said. “The currency and asset markets would be more volatile than they would have otherwise been.”

The state of the United Kingdom itself, with the vote showing Ireland and Scotland keen to remain in the EU, could lead to “systemic instability which affects us through international capital markets,” Coomaraswamy said. “Exports and tourism will be key channels of transmission – through the currency and any short-term UK recession.”

Although 40% of Sri Lankan exports go to the EU, only about 10% go to Britain, so the situation was “not so bad,” Coomaraswamy said. “It’s the same with tourism. The UK is an important market, they are big spenders. But any reduction (in arrivals) is not likely to cause a major shock to the system.”