Bank of England Governor Mark Carney said policy makers will take account of the interest rates actually paid by consumers as they start pushing rates higher.
In an interview with The Australian newspaper, Carney said that banks weren’t now charging customers for liquidity because central bank action meant it was plentiful.
“That’s going to change when policy moves,” said Carney, who is attending the G-20 summit in Brisbane. “Just through that dynamic, we think spreads are going to increase and volatility is going to increase.”
The question of how and when to raise interest rates after more than five years at 0.5 percent is one of the largest facing the governor. He said that low rates were still justified because of slack in the labor market, among other things.
“We’ve got downward pressure on inflation from past depreciation of sterling,” Carney said. “We’ve got huge disinflationary forces coming from our trade partners, particularly in Europe, and commodity prices have gone down quite sharply.”Carney, 49, told the newspaper that an increase in volatility was probable.
“Now it is low because interest rates are as low as they can go, there’s a lot of excess reserves in the system and there are perceptions of central bank policy that may not be fully warranted,” he said.
“We’re going to move to a world in the medium term where banks have to hold liquidity, hold more capital, do less proprietary trading and less market making. There will be more volatility in markets and more discipline around risk-taking and liquidity management.As a central bank, when you get to that point, you take that into account.”
The governor also said that the U.K.’s Financial Stability Board will spend the next year consulting on how to implement the G-20’s agreements on banking rules. He said attention will also fall on which “shadow banks” might be systemic risks to the economy.
bloomberg.com
“That’s going to change when policy moves,” said Carney, who is attending the G-20 summit in Brisbane. “Just through that dynamic, we think spreads are going to increase and volatility is going to increase.”
The question of how and when to raise interest rates after more than five years at 0.5 percent is one of the largest facing the governor. He said that low rates were still justified because of slack in the labor market, among other things.
“We’ve got downward pressure on inflation from past depreciation of sterling,” Carney said. “We’ve got huge disinflationary forces coming from our trade partners, particularly in Europe, and commodity prices have gone down quite sharply.”Carney, 49, told the newspaper that an increase in volatility was probable.
“Now it is low because interest rates are as low as they can go, there’s a lot of excess reserves in the system and there are perceptions of central bank policy that may not be fully warranted,” he said.
“We’re going to move to a world in the medium term where banks have to hold liquidity, hold more capital, do less proprietary trading and less market making. There will be more volatility in markets and more discipline around risk-taking and liquidity management.As a central bank, when you get to that point, you take that into account.”
The governor also said that the U.K.’s Financial Stability Board will spend the next year consulting on how to implement the G-20’s agreements on banking rules. He said attention will also fall on which “shadow banks” might be systemic risks to the economy.
bloomberg.com
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