National Post (National Edition)
Carney calls for monetary policy reform
O T TAWA • Mark Carney is wasting little time setting the tone for his tenure at the helm of the Bank of England.
Recent comments — both here and abroad — by the Bank of Canada governor have been spiced with calls for other policymakers to keep their options open to ensure “escape velocity” for their economies.
In other words, Mr. Carney, who will be transplanted to London in July, sees more wiggle room for monetary easing to stop the global economy from tipping back into recession.
On Monday in Zurich, Mr. Carney added another element to global uncertainty, saying more needs to be done to reform many areas of the financial system.
“The recent accommodative monetary policy actions are intended to stimulate the economic recovery,” Mr. Carney said at a news conference following a meeting of the Financial Stability Board (FSB), of which he is also chairman. “But at the same time, market participants and authorities need to be on guard against mispricing of risk and valuation of assets.
“While much has been achieved, more needs to be done.”
The Swiss-based FSB was created in response to recommendations by the Group of 20 to coordinate global bank reforms aimed at avoiding the kind of government bailouts that accompanied the 2007-09 financial crisis.
Many of the threats to financial stability that led to those actions still exist today.
“While financial markets have improved over recent months, medium-term downside risks remain, given weak growth prospects and high levels of public and private sector debt in many economies, “Mr. Carney said.
“Historically low interest rates in many countries pose challenges for institutional investors facing long-dated liabilities and they may also leave market participants more vulnerable to unanticipated moves in the yield curve.”
Those comments followed statements over the weekend at the World Economic Forum in Davos, Switzerland, in which Mr. Carney suggested there are more monetary tools that can still be put to work.
“Within the framework of flexible inflation targeting that exists in most of the developed economies, there remains considerable flexibility, which includes the use of communications,” he said Saturday, adding that monetary policy must ensure economies “achieve escape velocity.”
Mr. Carney has previously floated the idea of targeting real gross domestic product as an indicator for monetary action, similar to how the Bank of Canada targets inflation and adjusts its key lending rate accordingly.
Last week, speaking to reporters after the Bank of Canada issued its latest quarterly Monetary Policy Review, the governor acknowledged that Canada’s economy — like many others — was not expected to grow as quickly as previously forecast.
As well, inflation continues to be tame, he said, while consumer debt and the housing market show signs of stabilizing.
Mr. Carney said “all those factors together push back the need for any potential adjustment, any potential tightening, but this is still the ultimate direction.”
Not surprisingly, both the Canadian dollar and the British pound weakened in the days following Mr. Carney’s comments.
“The market judges what Carney said as being dovish,” Roberto Mialich, a currency strategist at UniCredit Global Research, told Bloomberg News.
Mr. Carney steps down at the Bank of Canada on June 1, but doesn’t take over from Bank of England governor Mervyn King until the beginning of July.
In the meantime, his public pronouncements will provide fodder for members of the U.K. parliament’s Treasury Committee, who will have their first chance to question Mr. Carney on Feb. 7 in London.
No doubt they will be asking for what more specific direction he may take monetary policy in that country.