Regulators mount 'Brexit' vigil, RBI promises liquidity support

Mumbai/New Delhi: As stocks, bonds and rupee turned volatile ahead of the 'Brexit' referendum on Thursday, RBI has promised liquidity support and all necessary steps to ensure orderly conditions in financial markets while Sebi and stock exchanges also beefed up their risk management systems.

The Reserve Bank said it is keeping a "close vigil" on developments in the wake of the uncertainties about the poll outcome triggering a turbulence in global financial markets, including in India.

"In the run up to the referendum in the United Kingdom on its continuing in the European Union (Brexit), uncertainty about the poll outcome has resulted in some amount of turbulence in global financial markets, including in India," the RBI said in a statement.

"The RBI is maintaining a close vigil on developments, and will take all necessary steps, including liquidity support, to ensure orderly conditions in financial markets," it added.

The UK will vote tomorrow on whether to remain in the 28-nation European Union or to leave. Britain's exit from the EU, or Brexit, is being debated globally as it could have implications for the international financial markets and exchange rates.

India has significant trade with the UK as well as the EU. It also receives large investments from Europe.

The stock market benchmark Sensex was down nearly 270 from its opening session high at one point of time in early afternoon amid Brexit uncertainties. It finally closed down by 47 points in a highly volatile trading session.

Continuing its slide for the third straight day, the rupee opened 11 paise lower at 67.59 against the US dollar on sustained demand for the American currency from importers and banks. It, however, ended the day flat at 67.48 per dollar.

Official said Sebi and stock exchanges have also beefed up their surveillance mechanism, including for currency derivatives market, to deal with any excessive volatility in the run up to the 'Brexit' referendum whose outcome is keenly awaited by the investors.

The domestic capital market has a robust surveillance and risk management framework in place and but has been beefed up to deal with any eventuality emanating from the 'Brexit' referendum and the uncertainties before that, they added.

All steps are being taken to ring fence the capital market from any adverse fallout as well as ensure that excessive volatility is contained, the officials said.

Yesterday, Federal Reserve Chair Janet Yellen said Britain's exit from the European Union would have a significant economic repercussions.

"One development that could shift investors sentiment is the upcoming referendum in the United Kingdom. A UK vote to exit the European Union could have significant economic repercussions," the US Federal Reserve Board Chairwoman Janet L Yellen had said.

Britain's exit from the bloc, widely described as 'Brexit', is being debated globally as such a development could have far reaching implications for the international financial markets, exchange rates and the world economy as a whole.

There are also fears that exit of Britain from the EU could trigger significant capital outflows, including from the Indian market.

According to the officials, Sebi and the bourses would also keep a close tab on manipulators looking to exploit the volatile trends expected in stocks and derivatives, including those linked to rupee's movement against other foreign currencies.

A strict vigil would also be kept on brokers, portfolio managers and other market intermediaries for any attempts to lure small retail investors into promises of hefty gains from the futures and options trading, especially in banking stocks and indices, the official added.