UPDATE 1-Carney backs inflation targeting as best for UK, Canada

Tue Feb 12, 2013 12:43pm EST

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* Carney favors flexible inflation targeting as best approach

* Carney Favors five-year reviews of inflation mandate

OTTAWA Feb 12 (Reuters) - Mark Carney, the governor of the Bank of Canada who will switch jobs to take the helm of the Bank of England in July, said on Monday that inflation targeting is still the best approach for central banks in both the UK and Canada.

In remarks to Canadian legislators, Carney emphasized what he told a British members of Parliament last week when he cooled expectations that he would push for sweeping changes in British monetary policy.

Carney, who was asked by Canadian opposition legislator Guy Caron for his views on targeting nominal GDP - a mix of growth and inflation - rather than inflation only, did recommend a periodic review of that mandate with the option of changing it.

Carney, in a speech in December, had mentioned nominal GDP-targeting in as an extreme measure in economies where central banks have run out of more conventional tools to boost their economies, leading some to speculate he would push for it at the Bank of England.

"It is still the position of the Bank of Canada that a flexible inflation targeting framework is the best in the world," Carney said on Tuesday.

"I share (the idea of) flexible inflation targeting here and, as I said last week, in the United Kingdom as well," he added.

The 47-year old former Goldman Sachs banker will leave the Bank of Canada on June 1 and take his new job in London one month later.

He stressed that Canada and the UK had little in common in terms of economic challenges.

"We don't have large public and private indebtedness, we are not at zero lower bound (interest rates), we don't have the problems in the financial sector that exist over there," he said.

One big advantage in Canada is that the central bank and the government review the inflation targeting framework every five years, he said.

"It's a chance to reaffirm the framework or change the framework," he said.

Before renewing its 2 percent inflation target in November 2011, the Canadian central bank had conducted research into the possibility of targeting a lower inflation rate, switching to price-level targeting, or formally adding financial stability as a target of monetary policy. It opted against any of these.

The Bank of Canada has had an inflation-control target since 1991, initially aiming for 3 percent and lowering it to 2 percent inflation since 1995.

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