On the day that the Bank of England held its benchmark interest rate at 0.5 percent, and left its stimulus plans unchanged, Mark Carney, who is due to take over the governorship of the British central bank in July, has been laying out his vision for reviving a near stagnant British economy.
Testifying before the UK parliament’s Treasury Select Committee, Carney said any rethink of how British monetary policy is run should be made carefully but changes should be looked at over time.
He also told the lawmakers that central banks should be flexible in meeting inflation targets.
Carney – who is Canadian – said a commitment to keeping stimulus over a period of time could be needed but played down speculation that he would rapidly press for bigger changes once he takes office.
“In my view, flexible inflation targeting — as practised in both Canada and the UK — has proven itself to be the most effective monetary policy framework implemented thus far,” he said.
“As a result, the bar for alteration is very high,” he said in written answers to questions from a parliamentary committee.
Sterling rose after Carney’s testimony as investors took it as showing little signs of looser monetary policy ahead.
“Some of Carney’s comments suggest that he favours 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, who will be the first foreigner to run the bank in its 318-year history, took part in a three-hour question-and-answer session with lawmakers 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.
Carney said he would welcome a short debate on this, as the Bank of England’s remit has not been seriously reviewed since it gained operational independence in 1997.