Federal Reserve chairperson Janet Yellen last week said she still anticipates ‘gradual’ rate hikes as international headwinds die down. Yellen presented her semi-annual testimony on monetary policy before the Senate Banking Committee, saying that a “cautious approach” on interest rates “remains appropriate” amidst “considerable uncertainty” about the economic outlook.

The Brexit vote in the UK could have “significant economic repercussions” if the British vote to leave the European Union, Yellen said. The Federal Reserve gave its assessment of risks related with the Brexit: “Even given moderate financial vulnerabilities, a number of possible external shocks, including if the UK chooses to leave the EU, could pose risks to financial stability.”

In the meantime, Germany’s Constitutional Court in Karlsruhe rejected a legal challenge to the European Central Bank’s Outright Monetary Transaction (OMT) programme. This is the bond-buying programme that allows the central bank to buy debt of financially strained countries.

The case was brought by thousands of German plaintiffs who argued that the OMT scheme violates the ECB mandate and stripped the German parliament of the right to approve or to reject burden-sharing financial guarantees among the eurozone countries.

The court did not come up with a complete opposition to the OMT but raised a number of objections, such as requesting for the scope of any involvement in the programme by the German Central Bank.

Finally the UK’s Office for National Statistics stated last week that the public sector net borrowing was £9.7 billion in May, compared with the £10.1 billion a year earlier.

In a Bloomberg survey, the median forecast was for a £9.5 billion deficit, which exceeds the projected level of £9.4 billion. Public sector net debt constitutes 83.7 per cent of Britain’s GDP. The figures were published amid warnings about the damage a Brexit would do to the public finances.

This report was compiled by Bank of Valletta for general information purposes only.

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