Carney sets high bar to changes in BoE goal
By William Schomberg and David Milliken | February 7, 2013 10:21 PM EST
Mark Carney, the next governor of the Bank of England, said on Thursday he would move carefully with any changes to the way the central bank runs monetary policy but suggested he might favour committing to stimulus for an economy over a period of time.
"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," Carney told MPs.
"As a result, the bar for alteration is very high," he said in written answers to questions from a parliamentary committee.
Carney, currently governor of the Bank of Canada and the first foreigner to run the bank in its 318-year history, faced a three-hour question-and-answer session with the committee after submitting his testimony.
In it, he said that while moving cautiously, reviewing monetary policies would be important.
"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.
After taking over at the Bank of Canada in 2008, Carney earned a reputation for successfully protecting his home country from the global financial crisis and he now faces the bigger challenge of getting Britain out of a rut of almost zero growth.
Carney promised to keep Canadian rates near zero for about a year in April 2009 as the global crisis intensified, before the idea was taken up by the U.S. Federal Reserve.
That kind of approach has raised eyebrows at the Bank. Several top officials have said it is not needed for Britain, in part because of concerns it could stoke the country's persistently above-target inflation.
Asked about that kind of communications policy by the MPs, Carney said central banks "may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up".
However, markets could begin to doubt that kind of commitment if inflation rose above target, he said.
"To 'tie its hands,' a central bank could publicly announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus," Carney said in his written answers. "This could reinforce the central bank's commitment to stimulative policy in the future and thus enhance the impact of its policies in the present."
(Reporting by William Schomberg, editing by Mike Peacock)