MARKETS and the Treasury yesterday talked down incoming Bank of England governor Mark Carney’s suggestion that a central bank may need to tear up the monetary rulebook to deal with a sustained slump.
In a speech in Toronto, Carney said that there was a case, in a prolonged slump, for abandoning inflation targets, and moving to a nominal GDP (NGDP) target – a policy that could lead to much more aggressive stimulus than the current approach.
Carney stressed he was speaking only in a Canadian context. But a spokesman for George Osborne yesterday said the chancellor was aware of Carney’s views on inflation targeting when he was appointed.
However, the Treasury said it had no plans to ditch the BoE’s two per cent inflation target.
And Chris Beauchamp at IG told City A.M. that the ideas were more of an evolution than a revolution, as the Bank already considers output in its policy decisions.