LONDON (Reuters) ― Bank of England Governor Mark Carney said central banks might not be able to fight off a sharp economic downturn because their monetary policy arsenals are still depleted from the global financial crisis a decade ago, the Financial Times reported.
“It’s generally true that there’s much less ammunition for all the major central banks than they previously had and I’m of the opinion that this situation will persist for some time,” Carney told the newspaper in an interview published on Tuesday.
“If there were to be a deeper downturn, (that requires) more stimulus than a conventional recession, then it’s not clear that monetary policy would have sufficient space.”
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The BoE has raised interest rates to just 0.75 per cent, a fraction above their emergency financial crisis levels. The U.S. Federal Reserve, which unlike most other central banks raised borrowing costs in recent years, cut them three times in 2019.
Carney, formerly the head of the Bank of Canada, has previously raised concerns about the risk of a global liquidity trap, in which central banks lose their ability to influence the economy because demand is too weak.
The FT quoted Carney as saying the BoE was looking into the issue of its reduced monetary policy options.
However, U.S. and euro zone interest rate cuts last year were encouraging borrowing and spending and “we’re starting to see that stimulus flow to the global economy,” he told the newspaper.
Carney repeated his suggestion that governments could do more to boost growth via their spending and tax policies.
He also reiterated his view that Britain should not agree to accept European Union rules for the financial services sector after Brexit, given the scale of the country’s banking and finance industry.
(Writing by William Schomberg. Editing by Andrew MacAskill)