LONDON (AP) — Mark Carney, the Canadian who will become the Bank of England's governor this summer, said Thursday he is open to a review of Britain's monetary policy framework, potentially paving the way to a more growth-oriented approach in Europe's third-biggest economy.
Carney has in the past suggested that central banks like the Bank of England, whose exclusive mission is to keep inflation stable, should also consider giving more weight to economic growth, as the U.S. Federal Reserve does. That has raised speculation that he might look to push for an overhaul of the Bank of England's policies when he takes over in July.
Addressing an influential U.K. parliamentary committee, Carney indicated that while "the bar for change" to the current inflation-targeting regime should be high, it makes sense to review the policies every few years.
"The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed," said Carney, who will become the first foreign governor of the Bank of England in its near 320-year history.
Among the measures that could be adopted is a reference to unemployment or providing markets with longer-term guidance, similar to the approach of the Fed.
While Carney was speaking, the central bank's rate-setting Monetary Policy Committee kept its main interest rate at the record low of 0.5 percent and decided not to pump more money into the economy.
In an unscheduled statement, it noted that it does consider economic growth in its assessments in as far as it affects inflation.
The MPC was established in 1997 when the Bank of England was granted its independence. The bank has been tasked to set interest rates to make sure inflation is at 2 percent two years out. But inflation has been stubbornly above that for much of the period since the financial crisis erupted in 2007. It is currently at 2.7 percent.
In its statement, the MPC said inflation was likely to remain above target for the next two years but that it should then fall back to around the target thereafter.
The traditional way of getting above-target inflation back down is to raise interest rates. But that could inflict huge damage to businesses as well as consumers at a time when the economy is already in the doldrums. In the final three months of 2012, the British economy contracted by a quarterly rate of 0.3 percent.
Carney confirmed he has had a couple of higher-level discussions with British finance chief George Osborne about the "merits of looking at the remit." Osborne has the power to alter the mandate and has signaled recently that he may be open to a change.
"Change is in the air for the U.K.'s monetary policy," said Tim Ohlenburg, senior economist at the Centre for Economic and Business Research. Continued...