Carney Says BOE Will Take Steps Needed to Battle Virus Shock
Bank of England Governor Mark Carney said the central bank is ready to take all necessary steps to help the U.K. economy weather the impact of the coronavirus outbreak.
The central bank’s Monetary Policy Committee is “assessing the economic impacts and considering the policy implications of various possible scenarios,” the outgoing governor told lawmakers in London on Tuesday. “We will come to quick conclusions about the appropriate stance of policy.”
Money markets already expect the BOE to ease policy this month as the outbreak threatens to disrupt a nascent pickup in the economy after Prime Minister Boris Johnson’s election victory in December. While those signs of optimism were enough to stave off a rate cut at the MPC’s January meeting -- Carney’s last as governor --the Canadian said his vote to leave policy unchanged was “more finely balanced” than it had been previously.
Carney said he is in contact with counterparts in the world’s biggest economies and the International Monetary Fund. Group of Seven finance ministers are due to hold a rare conference call on the virus later Tuesday, as they come under increasing pressure from investors to match their pledges to shield the world economy from the coronavirus with action.
Supply or Demand?
When questioned on the potential of an emergency rate-cut before this month’s meeting, Carney noted that BOE has always acted in a “timely” way, adding that he didn’t want to bind the hands of the MPC on the timing of its reaction.
Carney hinted at the complexity of dealing with the shock for central banks in assessing whether the impact falls on demand -- which they have more capacity to address -- or supply -- which is harder to deal with.
The BOE is examining the “extent to which supply disruptions have aggregate demand consequences via effects on cash flow, the cost and availability of finance, as well as confidence effects,” he said.
Silvana Tenreyro, another member of the Bank of England’s MPC who voted to hold rates, suggested she could soon join the two officials already pushing for a cut. In an annual report written in mid-February, Tenreyro said “a stronger rebound may be needed -- toward the top end of the range suggested by the surveys -- to remove the case for near-term stimulus.”
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