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Next BoE governor Carney considers longer-term interest rates

Mark Carney 7 Feb Speaking

Incoming Bank of England governor Mark Carney has opened the door to fixing interest rates over a longer period rather than month by month.

Current Bank of Canada governor Carney gave evidence to the Treasury select committee last week ahead of his appointment as Bank governor on 1 July.

The monetary policy committee currently decides whether to raise, lower or keep interest rates the same at a monthly meeting chaired by the governor.

At the Bank of Canada in April 2009, Carney pledged that interest rates would not rise until the third quarter of 2010 conditional on a stable inflation outlook.

Carney said: “In the UK there is a valid discussion to be had about the potential use of this tool to provide additional stimulus when appropriate.

“It had a very important effect in that it reached over the heads of central bank watchers and financial markets to Canadians and sent a message that there would be stimulus for a period of time and borrowing would be available at unprecedented rates.”

Carney also confirmed he intends to start a debate on a radical overhaul of the Bank’s remit such as scrapping inflation-targeting. He is considering expanding its mandate to focus on growth, unemployment and inequality as well.

He said: “The bar for change is high but there should be a debate, a relatively short debate as I don’t think prolonged uncertainty about the framework is in anybody’s interest. We can then confirm the existing framework or change.”

John Charcol senior technical manager Ray Boulger says: “The more you commit yourself to hold rates the more exposed you become to unexpected events. The Bank would need enough leeway to change tack if it needed to.”

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