— Refuses to be Drawn on Prospects of Emergency Rate Cut in the UK
By Laurie Laird
LONDON (Mace News) – Outgoing Bank of England Governor Mark Carney predicted “powerful” measures from policy makers across the globe in response the economic slowdown posed by the international spread of the corona virus.
But the UK’s top monetary official refused to be drawn on whether the BoE will follow the Federal Reserve’s emergency 50 basis point rate cut on Tuesday, acknowledging the “differences in the exact timing and form of [monetary policy] efforts across jurisdictions.”
The Bank of England’s Monetary Policy Committee next meets on March 26th, but Carney will cede leadership of the UK central bank to Andrew Bailey, a financial regulatory expert, on March 16th.
Addressing students at University College London, Carney did stress that the BoE remains in close consultation with “our international colleagues” and with policy makers at the UK Treasury, raising the speculation that the Bank could stay its hand until after new Chancellor of the Exchequer, Rishi Sunak, presents his first budget on March 11th.
In his last address as BoE governor, Carney repeated his assertion that the Bank retains moderate space to ease monetary policy, despite the Bank’s benchmark rate standing at a near-record-low 0.75%. “We still have a lot of ammunition … a combination of asset purchases, special liquidity measures and forward guidance” could provide monetary easing worth 200 to 250 basis points, he said. “We are more constrained, but we do have space.”
However, Carney spoke at length about the merit of macro prudential measures in combatting a slowdown, particularly a flexible approach toward banks’ holdings of capital buffers. “Higher bank capital requirements reduce the likelihood and severity of a future downturn,” he said, but acknowledged that “capital is expensive to hold … and higher capital holding requirements “could permanently damage output.”