* Cites need for speedy and transparent action
* Need to have a plan and execute it - even Plan B
* Sees power of flexible inflation targeting
* Examined switch to targeting nominal GDP
By Solarina Ho and John Tilak
TORONTO, Dec 11 The Bank of Canada's Mark Carney
mused about priorities in reply to a question about the lessons
he would take to his next job in London, but said he would only
discuss Britain's needs when he talks to a House of Commons
committee next year.
Asked about lessons he would take to his next position, as
the head of the Bank of England, Carney stressed the importance
of speedy, transparent action to address potential flashpoints.
He felt Canadian policymakers were open about the depth of
their troubles, for example, in the asset-backed commercial
paper market and had benefited from the bank's flexible
inflation target, which underpins monetary policy.
"We didn't have bank failures and we didn't have other
issues ... in part we didn't have those because we made tough
decisions in a timely fashion," said Carney, who will leave the
Canadian central bank on June 1 and become Bank of England
governor on July 1.
He stressed that none of his comments were directly
applicable to the British central bank and it would not be
appropriate to comment on British policy ahead of planned
testimony to the British Parliament's Treasury Select Committee.
"So the first thing is transparency," Carney said. "You have
to level with people on the scale of the problem. It does no
good to try to spin your way out of the crisis, if you will.
"Secondly, the importance of having a plan, explaining that
plan and then executing the plan ... Someone has to take a
decision, take control, and we played a role in that."
Carney also said a Canadian strength was the strong
coordination among the major financial authorities, as well as
the depth of talent at the central bank.
One major change he will face is that the Bank of England
does not operate by consensus and with one voice, as does the
Bank of Canada, and the governor can be outvoted.
The Bank of Canada has an inflation target of 2 percent
within a range of 1 to 3 percent, but Carney has also discussed
the idea of flexible targeting, where rates could be higher than
needed to keep inflation at 2 percent, to lean against an asset
bubble, say in the housing market.
"But in order to get the most benefit from that framework,
transparency, communication, is absolutely crucial," he said.
"And there's ways to use communication to potentially amplify
that power in extraordinary circumstances, which may be
appropriate in some jurisdictions, not in other jurisdictions."
He said the Bank of Canada explored the idea of changing the
target altogether from inflation to nominal gross domestic
product (real gross domestic product plus inflation), but
decided against that.
Exploring the idea of "enhanced guidance" - such as the Bank
of Canada's conditional commitment in April 2009 to keep rates
low through the second quarter of 2010 and the U.S. Federal
Reserve's current interest rate policy - he said the tactic
could be used more broadly.
One possibility was a commitment to highly accommodative
policy even after the economy and inflation picks up, to achieve
a better path for the economy over time.
"To 'tie its hand,' a central bank could announce precise
numerical thresholds for inflation and unemployment that must be
met before reducing stimulus," he added.