February 7, 2013 / 1:56 AM / 7 years ago

Carney sets high bar to change at Bank of England

LONDON (Reuters) - Mark Carney, the next governor of the Bank of England, cooled expectations that he would push for sweeping changes in British monetary policy, but gave a taste of the approach he will bring from Canada when he takes over later this year.

In his first detailed comments on Britain’s near-stagnant economy, Carney said on Thursday that committing to keeping monetary stimulus unchanged for a set period might be needed to help restore confidence among firms and households.

That is something that Carney introduced at the Bank of Canada, an unusual step at the time and one which was subsequently adopted in the United States, adding to his reputation as one of the world’s best central bankers.

But Carney, who will be the first foreigner to run the Bank of England in its 318-year history, used a question-and-answer session with British lawmakers to play down speculation that he would rapidly press for bigger changes at the bank.

He was also quick to note Britain’s policy of focusing on inflation but not at the expense of choking the economy.

“In my view, flexible inflation targeting - as practiced in both Canada and the UK - has proven itself to be the most effective monetary policy framework implemented thus far,” the Canadian central bank chief said.

“As a result, the bar for alteration is very high,” he said.

However, he said an early debate involving the government about the details of the bank’s mandate would be welcome - in particular how much time the central bank should take to bring above-target inflation to heel.

Carney, a 47-year-old former Goldman Sachs banker, takes over at the Bank of England in July, when Britain’s economy will probably be struggling to put two years of almost zero growth behind it.

He said the weak state of the economy would merit monetary stimulus for a period of time but the Bank of England’s policies to date could prove sufficient.

“It’s entirely possible, in fact probable, that the current stance of policy is consistent with the economy achieving escape velocity,” Carney told lawmakers.

He gave no clear signal that he would push for more government bond-buying by the Bank of England, stressing the risks posed by quantitative easing and research by the Bank of Canada that showed its effectiveness diminished with time.


Sterling rose as investors took Carney’s comments to show little sign of looser monetary policy ahead. The pound rose 0.4 percent to $1.5720.

But British government debt prices fell as he kept the door open for a more pro-growth approach in the future and said he would consider buying assets other than gilts if required, anathema to the Bank of England’s current leadership.

“Some of Carney’s comments suggest that he favors some changes in the BoE’s policy framework. Nevertheless, we rule out that changes will be abrupt as he sounds very keen on maintaining confidence in the institution’s credibility,” said Annalisa Piazza, an economist at Newedge Strategy.

Carney, whose session with lawmakers ran for nearly four hours, stressed he wanted an early debate on the Bank of England’s remit which has not been seriously reviewed since it gained operational independence in 1997.

“Although the bar for change ... should be very high, it seems to me important that the framework for monetary policy -rightly set by governments and not by central banks - is reviewed and debated periodically,” Carney said.

Not only does finance minister George Osborne set the policy framework, there is no guarantee Carney could force through change even if he wanted to.

“Whatever Mark Carney says about monetary policy today, he will be one member of nine on the MPC, so cannot dictate policy,” former Monetary Policy Committee member Andrew Sentance said.

A video grab image shows Mark Carney, the next governor of the Bank of England, answering questions from a parliamentary committee in the Houses of Parliament in central London February 7, 2013. REUTERS/UK Parliament

Other factors out of Carney’s control include the British government’s reluctance to increase spending significantly, and the recession in the euro zone, Britain’s main trading partner.

As Carney was quizzed in Westminster, the Bank of England opted to keep monetary policy unchanged with interest rates left at 0.5 percent and no increase in its bond-buying program.

Carney will take over the Bank of England when it is still smarting from criticism that it was slow to act at the start of the 2008-2009 financial crisis and of being burdened by an over-hierarchical culture under current Governor Mervyn King, accused by some critics of acting as a “Sun King”.

Asked about his ideal management style, Carney said: “It can’t be an emperor, it’s more a managing partner.”

Several lawmakers on the Treasury Committee shared jokes with the Canadian and they endorsed his nomination, although they lacked powers to block it. Some questions about his 874,000 pound ($1.37 million) annual remuneration did not ruffle Carney.

“You will be paid considerably less than English football managers and I think you will have more success than them,” said one member of parliament, David Ruffley.


After taking over at the Bank of Canada in 2008, Carney earned a reputation for protecting his home country from the global financial crisis. He promised to keep Canadian interest rates near zero for about a year in April 2009 as the crisis intensified, an idea later taken up by the U.S. Federal Reserve.

That kind of approach has raised eyebrows at the Bank of England. Several top officials have said it is not needed, in part because of concerns it could stoke the country’s persistently above-target inflation. Carney himself said it would have to be seen whether it would be suitable for Britain.

He also noted how the U.S. Federal Reserve recently set inflation and unemployment thresholds to help signal when it will raise its near-zero interest rates to boost confidence.

Carney said any move to such a system in Britain would depend on how quickly the bank would be expected to correct any overshoot in inflation expectations.

Slideshow (3 Images)

He was cool on the idea of setting a higher inflation target than the Bank of England’s 2 percent.

“In my view, moving opportunistically to a higher inflation target would risk de-anchoring inflation expectations and destroying the hard-won gains that have come from the entrenchment of price stability,” Carney said.

And he sought to play down previous comments that, in times of crisis, central banks might consider targeting a mix of inflation and growth rates instead of just inflation.

($1 = 0.6368 British pounds)

Additional reporting by Huw Jones, Li-mei Hoang, Costas Pitas, Brenda Goh and Alice Baghdjian; editing by Mike Peacock and Stephen Nisbet

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below