Marking a sharp change from the era of outgoing head Sir Mervyn King, Carney raised the prospect of changing the Banks’ target, increasing flexibility around its operations, and shaking up management in a more cordial and open fashion.
Policymakers could be given a dual mandate to target unemployment and growth as well as inflation, he told the parliamentary hearing, drawing on international experience of countries like the US and his native Canada.
Carney called for a public debate around innovations like nominal GDP targeting, despite Sir Mervyn’s rejection of the idea.
The Bank of Canada governor ultimately agrees such a drastic change would be not be beneficial, but just raising the idea is an indication he wants to bring a new era of fresh thinking to the Bank.
For example, he told MPs he wants to change the Bank’s policy horizons. Currently it only sets interest rates for one month at a time.
But Carney believes a pledge to keep interest rates down for 15 months created more stability in the Canadian economy, giving households and firms a vital extra incentive to borrow and invest.
“It had an immediate effect in the money markets, a measurable and persistent effect with direct pass through to broader financial conditions,” he told the Treasury Select Committee. “It reached over the heads of central bank watchers and directly to Canadians to say borrowing was available at unprecedented rates for a period of time.”
Similarly Carney believes a pledge to keep rates low until unemployment falls below a set target could give the economy the boost it needs to get out of its current long slump.
Changing the Bank’s mandate to a focus on growth and jobs, as well as inflation would allow it to let prices run high more openly than it does now, if policymakers fear the tough social consequences of sticking to the inflation target.
The session also revealed a change of style compared with Sir Mervyn – Carney favours consensus in his management, contrasting with some accusations that Sir Mervyn has a more commanding approach.
But there were a few signs of potential discord – Carney said he favours imposing a much tighter leverage ratio on UK banks than the limit George Osborne is applying, arguing tighter ratios helped Canada’s banks through the crisis.
This is the first time MPs have been able to grill an incoming Bank governor, reflecting the extra accountability Carney takes on with the Bank’s new powers.
They approved the appointment.