Carney Adds to Calls for Governments to Step Up Reform Efforts

  • BOE governor says monetary policy alone isn’t enough
  • Rebalancing toward fiscal and structural policies needed

Mark Carney

Photographer: Guillermo Gutierrez/Bloomberg

Mark Carney said governments need to do more to strengthen their economies with fiscal and structural policies as the Bank of England governor added his voice to calls that authorities are relying too much on monetary policy to boost demand.

“Long-run prosperity was never in the gift of monetary policy makers,” Carney said in prepared remarks for a speech in Berlin on Thursday. “A consensus is growing that escaping this low-growth low-inflation trap will require a rebalancing between monetary, fiscal and structural policies.”

With global interest rates so low and many central banks close to the limits of their powers after almost a decade of battling the fallout from the financial crisis, the emphasis could be shifting to other approaches. European Central Bank President Mario Draghi has repeatedly urged governments to support his actions with structural efforts, and his institution has has created a task force of national central bank staff to consider economic reforms, according to people familiar with the matter.

Carney recently referred to the limits of monetary policy in relation to risks surrounding the U.K.’s decision to leave the European Union. After the BOE cut interest rates and restarted quantitative easing last month, he said the bank could provide support but “cannot immediately or fully offset the economic impacts of a large structural shock.”

In his speech in Berlin, which focused on climate change, Carney said supply-side reforms are the most important element in the rebalancing.

“In addition to their merits in raising potential growth directly, structural reforms could improve the savings and investment balance, thereby increasing equilibrium interest rates and giving monetary policy more traction,” he said.

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