Mervyn King Joins Central Banks Seeing Limits of Monetary Policy

Is Current Monetary Policy Sowing-the-Seeds to Crisis?
  • Use of negative interest rates signals `diminishing returns'
  • King joins Australian, Canadian bank governors in warning

Former Bank of England Governor Mervyn King added to calls by central bankers to recognize that monetary policy is close to its limit, saying the world faces a “major disequilibrium.”

Central banks need to “argue much more forcefully than they are doing that the answer is not monetary policy,” King said in an interview Wednesday on Bloomberg Television’s “The Pulse” with Francine Lacqua.

Mervyn King in London, on Wednesday, April 20.
Mervyn King in London, on Wednesday, April 20.
Photographer: Chris Ratcliffe/Bloomberg

While policy makers have bought time, they can do little more, he said, noting that the introduction of negative interest rates by some central banks demonstrates they are facing “diminishing returns.”

King’s comments come amid increased questioning of monetary policy’s effectiveness even within the central banking world. Reserve Bank of Australia Governor Glenn Stevens said on Tuesday that “maybe we need to be clearer about what we can’t do,” and Stephen Poloz, who heads the Bank of Canada, said policy might be “close to its maximum ability.”

Mark Carney, King’s successor at the BOE, told lawmakers in London Tuesday that officials have room to cut the U.K.’s benchmark rate still further. Policy makers last reduced it, to a record-low 0.5 percent, under King’s tenure in 2009.

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