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Bank chief may scrap inflation-targeting

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12/12/2012
Incoming Bank of England governor Mark Carney could dump inflation-targeting to kick-start growth.

Carney, the current Bank of Canada governor who takes over from Sir Mervyn King next June, said central bankers should consider committing to low interest rates in order to boost economies, even when inflation picked up.

According to the Telegraph, he said in a speech: “To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up.”

The UK is currently wedded to an inflation target of 2% for Consumer Prices Index (CPI) inflation but over the past five years since the start of the financial crisis, the Bank of England has missed its inflation target in 42 out of 62 months.

Speaking at the Chartered Financial Analyst Society in Toronto, Carney’s words will be seen as a hint that he will push for radical action in the UK, where the economy has been stagnant for two years. On his appointment, he said that he would be going “where the challenges are greatest”.

He added: “If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting.”

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