Central banks taking ‘back seat’ in crisis response: BIS

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.”