Ex-BOE’s Posen Says Carney Faces Limited Scope to Weaken Pound

Former Bank of England policy maker Adam Posen said incoming U.K. central bank Governor Mark Carney faces limited choices if he wants sterling to weaken.

“I don’t think Governor Carney has the tools to want a weaker pound,” Posen said in a Bloomberg Television interview in Tokyo today. “The only way the pound goes down is if you get bad news about the U.K., in which case then the BOE is really caught, because they’re caught between a rise in inflation expectations and a slower economy. I don’t think they’re going to be trying to talk down the pound any time soon.”

Carney will want to see sterling weaken and the pound may drop to a four-year low of $1.37 during his tenure, Michael Amey, a money manager at Pacific Investment Management Co., said on May 29. The Bank of Canada governor takes over from Mervyn King at the Bank of England on July 1.

The pound was at $1.5192 as of 11:26 a.m. London time. It initially pared losses against the dollar after Posen’s remarks, rising as high as $1.5227.

Stimulus expansion by global central banks prompted a call in February from the Group of 20 countries that authorities should avoid intentionally weakening their currency. Carney, along with other central bankers and finance ministers from the G-20 last month reaffirmed that commitment to refrain from “competitive devaluation” of exchange rates.

G-20 Annoyance

The Bank of England “can try to talk down the pound and then the G-20 will quite rightly shout at them,” Posen said, speaking to Francine Lacqua and Guy Johnson on Bloomberg Television’s “The Pulse” today. “They don’t have the intervention tools and they shouldn’t use them because again the G-20 will get really annoyed.”

Posen, who was a member of the BOE's Monetary Policy Committee between 2009 and 2012, is currently President of the Washington-based Peterson Institute for International Economics.

In the U.K., policy makers have been split in recent months on whether the economy needs further quantitative easing, with King voting since February in the minority for more bond purchases.

“I didn’t expect them to do more until the new governor came in,” Posen says, referring to the prospect of the BOE increasing QE. “I think the real question is going to be some form of credit easing.”

Chancellor of the Exchequer George Osborne in March gave the BOE more flexibility in reaching its inflation target and asked policy makers to report back in August on the potential of using forward guidance to spur the recovery.

“Governor Carney knows he’s got until August to put together a program and I don’t think it’s going to be very radical,” he said. “Governor Carney quite rightly is more concerned about integrating the bank supervision and financial stability roles the Bank of England now has, and that’s going to take precedence.”

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