Future Bank of England Governor Mark Carney said while his Canadian experience may offer lessons to other countries, he will seek help from his colleagues and not try to run the London-based central bank as a one-man show.
Carney declined to comment on what stimulus policies he would seek at the Bank of England, speaking to reporters in Montreal yesterday. He said he agreed with current Governor Mervyn King’s comment in a Sky News interview last weekend that the institution isn’t a “one-man show.”
“That is one of the strengths of the institutional setup,” Carney said. The Bank of England “has tremendous responsibilities, but each of those responsibilities are discharged by committees, of which the Governor of the Bank of England is only one member,” he said, adding that King’s comments were “absolutely right.”
Most of Carney’s final speech as Bank of Canada Governor, ahead of his June 1 departure, focused on how Europe could look to Canada as a model as the continent’s economy struggles to grow. Canada emerged faster than other developed countries from the 2008 global financial turmoil, aided by Carney’s monetary stimulus, domestic banks that kept lending and record public works spending by the federal government.
“Relative to our peers, Canada is working,” Carney, 48, said during the speech. “Canada could adjust quickly to the shock of the global financial crisis,” Carney said, adding that today the country needs to “build” rather than “repair” its economy.
The nation’s inflation-targeting regime was a “critical anchor” during the crisis, with the bank’s conditional commitment to keep interest rates unchanged maximizing the effect of the policy rate, Carney said.
Europe’s economy remains hobbled by spending restraint, low confidence and tight credit conditions, Carney said. “Without sustained and significant reforms, a decade of stagnation threatens,” he said. Europe could also take lessons from Japan about the need to take bold measures, he said.
Carney helped ease the global slump’s impact on Canada after his term began on Feb. 1, 2008, cutting the bank’s benchmark rate from 4 percent to 0.25 percent in April 2009, the lowest since it was founded in 1934. He also made a “conditional commitment” to keep rates low for a fixed period, while avoiding the purchase of bonds to stimulate the economy, an approach known as “quantitative easing.”
Carney said in response to a question about future Bank of England policies that “it would be totally inappropriate for me to make any judgment on what those decisions could be.”
Governor King on May 15 declared a U.K. recovery is now “in sight” as he presented his final forecasts with an improved economic outlook.
Bank of Canada policy makers said in their last rate decision April 17 that the economy wouldn’t reach full capacity until mid-2015. Growth in the world’s 11th-largest economy probably picked up to a 2 percent annualized first quarter pace after slumping to 0.6 percent at the end of last year, according to a Bloomberg economist survey.
The annual inflation rate slowed to 0.4 percent in April, the lowest in more than three years and outside the central bank’s 1 percent to 3 percent target band, Statistics Canada reported last week.
Carney’s comments avoided a detailed outlook for the Canadian economy. In his speech, he reiterated that Canada’s challenge will be to “rotate sources of growth toward net exports and business investment.” At the press conference, Carney restated his view that the risks from a housing and consumer-debt boom are moderating.
“We cannot grow indefinitely by relying on Canadian households increasing their borrowing relative to income,” he said.
Carney also said the central bank has maintained its tightening bias on interest rates -- the only central bank in the Group of Seven to say its next move may be to raise rates -- partly to complement efforts by other policy makers to curb household debt.
He said the stimulus of low interest rates will be “withdrawn appropriately as threats diminish.”
While rising commodity prices tend to benefit resource-rich provinces such as Alberta, other provinces still benefit from a stronger currency because of a decline in the cost of inputs that improve competitiveness and a surge in trade within the country, Carney said.
Canada’s system of transfers to poor provinces, its employment-insurance system and labor-market flexibility also offset shocks, he said. “One of the building blocks of European fiscal federalism could be a pan-European employment insurance scheme built on a common European labor market,” Carney said.
He also highlighted the differences between Canada’s and Europe’s banking systems, saying the euro region will remain weakened without “major reforms to create a banking union.”
Carney’s last official Canadian business is a May 29 decision where economists forecast he will keep the policy interest rate at 1 percent, where it’s been since September 2010 in the longest pause since the 1950s. He isn’t expected to make a public statement that day and leaves June 1 to take over the Bank of England a month later. His replacement is Stephen Poloz, head of the country’s export-finance agency.
Today Carney said he hasn’t had much time to think about his legacy and he declined to lay out advice for Poloz, saying he is a “capable” leader.