Carney Says Policy Must Achieve ‘Escape Velocity’
Bank of Canada Governor Mark Carney, urging central banks to secure “escape velocity” for their economies, said there is still room for more monetary stimulus around the world if needed.
In comments that may shed light on his thinking as he prepares to take over the Bank of England in July, Carney said policy in developed countries isn’t “maxed out” and that central bankers can be flexible in meeting inflation goals.
The current task of monetary policy is to ensure the key economies “achieve escape velocity,” Carney told the World Economic Forum’s annual meeting on Jan. 26 in Davos, Switzerland, identifying communication and unconventional stimulus as possible tools. “There continue to be monetary policy options in all the major economies,” he said.
While Carney didn’t specify the U.K., he said that central bankers “might take a little longer” to hit their inflation goals in economies facing budget cuts and above-target inflation. That echoes the policy of the Bank of England, which has left its key interest rate at 0.5 percent for almost four years and pursued asset purchases even though inflation has topped its 2 percent target over the period.
Carney last month sparked debate on the future of the BOE’s mandate when he said nominal gross domestic product targeting could be an even “more powerful tool” to stimulate economies, though he didn’t discuss the subject in Davos.
King, Turner
Bank of England Governor Mervyn King in a speech last week welcomed the debate, saying it’s “sensible” to review monetary policy arrangements. Adair Turner, chairman of the U.K.’s Financial Services Authority, will say in a speech next month that an inflation target isn’t enough to promote growth, the Sunday Telegraph reported yesterday without saying where it got the information.
Drawing a closer parallel with Canada, Carney said in Davos that a central bank could “lean into the wind” if inflation is below target and yet there is a potential issue with household credit. That may involve keeping monetary policy tighter than otherwise would be the case.
Canada’s inflation rate was at a three-year low of 0.8 percent in December and Carney has identified consumer debt as a concern.
“Within the framework of flexible inflation targeting that exists in most of the developed economies, there remains considerable flexibility,” Carney said.
More Stimulus
King said in a speech on Jan. 22 that the bank is “ready to provide more stimulus if it is needed.” Minutes of the bank’s Jan. 10 policy decision also showed that officials saw scope for asset purchases to lower bond yields and support asset prices, though “there remained uncertainty about their impact on nominal demand” as the economy rebalances and the banking system heals.
U.K. lawmakers will question Carney on the BOE’s quantitative easing program when he appears before the Treasury Select Committee on Feb. 7.
While monetary policy can be more “nimble” than fiscal policy, central banks alone cannot overcome economic strains, Carney said. Governments in Europe and the U.S. need to take steps too.
“There is not an ability of central banks to take all these risks out or set the seeds for a sustainable recovery,” he said.
To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
Bank of Canada Governor Mark Carney
Chris Ratcliffe/Bloomberg
A recession in Europe and cooling emerging-market energy consumption triggered a deeper slowdown than anticipated in the second half, policy makers led by Bank of Canada Governor Mark Carney said yesterday as they pared the central bank’s forecast for economic growth this year to 2 percent and said the case for raising rates is “less imminent.”
A recession in Europe and cooling emerging-market energy consumption triggered a deeper slowdown than anticipated in the second half, policy makers led by Bank of Canada Governor Mark Carney said yesterday as they pared the central bank’s forecast for economic growth this year to 2 percent and said the case for raising rates is “less imminent.” Photographer: Chris Ratcliffe/Bloomberg
Jan. 26 (Bloomberg) -- Bank of Canada Governor Mark Carney said central banks have room to ease monetary policy further if needed and can be flexible in meeting inflation targets. Carney, who will take over the Bank of England in July, spoke today at the World Economic Forum's annual meeting in Davos, Switzerland. (Excerpt. Source: World Economic Forum)
Jan. 28 (Bloomberg) -- Deutsche Bank AG Co-Chief Executive Officer Anshu Jain, ICICI Bank Ltd. CEO Chanda Kochhar, Bank of America Inc. CEO Brian Moynihan and Bridgewater Associates LP Founder Ray Dalio discuss the risk of a credit bubble. They spoke at the World Economic Forum's annual meeting in Davos, Switzerland. (Source: Bloomberg/World Economic Forum)
Bank of Canada Governor Mark Carney
Chris Ratcliffe/Bloomberg
Bank of Canada Governor Mark Carney speaks during a session on the final day of the World Economic Forum in Davos on Saturday.
Bank of Canada Governor Mark Carney speaks during a session on the final day of the World Economic Forum in Davos on Saturday. Photographer: Chris Ratcliffe/Bloomberg
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