Incoming Bank of England governor Mark Carney has opened the door to longer-term “interest rate paths”, fixing rates for years ahead rather than changing them at monthly monetary policy committee meetings.
Current Bank of Canada governor Carney gave evidence to the Treasury select committee this morning ahead of his appointment as Bank governor on 1 July.
The MPC 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 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.
“In Canada it had an immediate effect in the money markets on the interest rate curve, which persisted. There was a direct pass through effect to financial markets.
“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.
“People could plan whether to buy a house, renovate or invest. They had enough time to act and anecdotally everyone knew about it in Canada and it had an effect.”
Carney also confirmed he intends to debate a radical overhaul of the Bank’s remit by scrapping inflation-targeting, potentially focusing on GDP.
He said: “I note that there seems to be an appetite for some debate about what exactly the framework is and what alternatives there could be to it.
“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.”
Carney also said that unemployment and inequality should be a “consideration” when the Bank is devising its policies.
Carney on his £874,000 pay package
“It is broadly equivalent to the outgoing FSA chief executive Hector Sants”
Carney on the banks
“Senior officials at banks appeared to escape unscathed from the crisis and received large payouts”
Carney on the monetary policy committee
“12 meetings a year is enough, verging on too many”
Carney on QE
“Assessing the impact is more properly the job of others not the Bank”
Carney on the Bank of England structure
“I hesitate as a foreigner coming in and changing the longer traditions of the institution.
Carney on chancellor George Osborne
“I won’t be commenting much on fiscal policy so I wouldn’t expect the chancellor to comment on monetary policy”
Carney on the eurozone banking union
“It’s essential that the British position is adequately safeguarded”