* Says OK sometimes to let inflation run above target for
* Acknowledges limits to flexible inflation targeting
* Says weak growth no reason to dismiss quantitative easing
* Forward guidance has positive effects
EDMONTON, Alberta, May 1 The next Bank of
England governor, Mark Carney, endorsed on Wednesday the idea of
sometimes letting inflation run above target for longer than
normal, while also warning of the risks to credibility if this
is taken too far or done too often.
Carney, governor of the Bank of Canada till June 1, sang the
praises of flexible inflation targeting, saying tighter monetary
policy might be needed to prevent imbalances from developing and
looser policy might be needed to avoid further damage to the
The Bank of England has let inflation run above its 2
percent target even while it pursues an extraordinary amount of
monetary easing, keeping interest rates at 0.5 percent for four
years and engaging in buying massive amounts of government debt
in a bid to spur economic growth.
"The weakness of growth since quantitative easing was
introduced is not itself a reason to doubt that it is an
effective policy," he said in a lengthy lecture in Edmonton,
Alberta, examining the lessons learned from five years of
But he acknowledged limits to flexible targeting. "The time
frame for returning inflation to target can be stretched, but
the credibility essential for the success of such a tactic could
be undermined if such flexibility is taken too far, deployed too
frequently or undertaken by stealth," he said.
Carney said asset purchase programs by the U.S. Federal
Reserve and the Bank of England have had positive effects on
financial markets, but that it was more difficult to judge how
these effects were transmitted to the broader economy.
He made no specific remarks about whether the BoE should
expand its asset purchase program or pursue other forms of
unconventional policies. Nor did he provide any new guidance on
Canadian policy, other than to repeat that household debt levels
were stabilizing, in part due to the bank's rate-hike talk since
He said central banks that have provided forward guidance,
such as the Fed's policy of setting a threshold for
unemployment, have helped provide further stimulus to economies.
Such policies, which are now being debated in Britain, can lead
to lower long-term nominal rates and reinforce their stimulative
effect, he said.
While price stability should remain the primary objective of
monetary policy it does not guarantee financial stability and
might even promote financial instability over the medium term,
The lecture was his penultimate speech as Bank of Canada
governor before he steps down to run the Bank of England
starting in July. Carney's successor is expected to be named