BoE policymaker doubts value of long-term rate commitment
By David Milliken | January 29, 2013 6:14 AM EST
A senior Bank of England policymaker raised doubts on Monday about whether the bank would benefit from longer-term policy commitments of the type championed two days ago by its future governor, Mark Carney.
The intervention by David Miles, an external member of the bank's Monetary Policy Committee, adds to growing uncertainty about whether Carney's arrival from the Bank of Canada in July will lead to big changes at the British central bank.
"I don't think it would be helpful for the MPC to say: 'Here is where policy is going to be for the next several months'. If we did that there wouldn't be any point in having monthly meetings," he told the London Evening Standard newspaper.
Carney has not yet made any detailed public comments about British monetary policy, but in some general remarks on central banking on Saturday he said there was still scope to do more to help the economy.
"Within the framework of flexible inflation targeting that exists in most of the developed economies, there remains considerable flexibility which includes the use of communications," he told a conference in Davos, Switzerland.
At the Bank of Canada, Carney - who starts at the Bank of England in July - has favoured long-term commitments to keep interest rates low as an effective tool to stimulate the economy when interest rates cannot go lower.
But Miles said this would not be effective in Britain. "I think we are able in the current framework to give plenty of guidance about our thinking and how we see the economy evolving," he said.
Unlike the Bank of Canada, the Bank of England produces detailed policy minutes of its MPC meetings, in which readers can see the debates and disagreements that lie behind each month's interest rate decision.
The Bank of England's chief economist, Spencer Dale, and its executive director for markets, Paul Fisher, expressed reservations about a change to their approach to future policy guidance and the correct target for monetary policy in comments last month, after Carney raised the issue in a speech.
But current governor Mervyn King said last week that there may be some benefit in clarifying how rapidly the Bank of England was expected to return inflation to target during periods of economic weakness.
Any change to the BoE's remit would require approval from finance minister George Osborne, who repeatedly courted Carney to come to Britain.
In December, Osborne said he welcomed a debate on the remit, but that there would need to be a very strong case to do so.
Late on Sunday the Financial Times, reported that Osborne had told Carney in Davos that he may have accidentally raised unrealistic expectations of change.
A finance ministry spokeswoman declined to comment on the meeting between Carney and Osborne.
"The Chancellor has made clear there no plans to change the current monetary policy framework and agrees with the Governor (King) that keeping inflation under control is of vital importance," she added.
According to the FT, Osborne still wants Carney to be more active in trying to put an end to Britain's economic woes, but said there was no need to change the BoE's remit from targeting inflation to targeting nominal gross domestic product, a measure that explicitly takes growth into account.
Carney mentioned nominal GDP targeting briefly in his speech in December, but has not raised it since, and Miles said on Monday that it would only be appropriate as a temporary emergency measure.
(Additional reporting by Costas Pitas; Editing by Hugh Lawson, Ron Askew)