The Bank of England President Carney Warns About the Risks of the Global Liquidity Trap
Hülya Karahan: Production Editor
Outgoing Bank of England President Mark Carney warns that as the global central bank is close to running out of aid, if the next wave of recessions is too severe, there will be no tools available to deal with it.
In an exclusive interview with British media, Carney published Wednesday, saying that all major central banks currently have less ammunition than before and will continue for some time. Therefore, if something worse than a “normal recession” occurs, he is not sure if there is enough room for monetary policy to deal with it.
Carney had previously expressed concern about the risks of the global liquidity trap. When the liquidity trap appeared, monetary policy had no way to stimulate the economy. Due to the economic downturn, people holding liquid assets were unwilling to invest.
Carney, who is expected to step down from the Bank of England in March, is the first foreign-born president of the 300-year-old institution. Since 2013, he has deliberately normalized monetary policy, but shortly thereafter, he was unable to take action due to the impact of the Scottish referendum, Brexit and political turmoil in the election.
The Bank of England kept interest rates unchanged at 0.75% last month, with only a few members suggesting a rate cut. Andrew Bailey was nominated to take over as president after three extended terms.
Carney said that Bailey has room for policy, and the Bank of England can lower interest rates to near-zero levels according to actual needs. In addition, by relaxing the capital requirements of banks and supplementing monetary policy with macro tools, banks can have more capital to lend.
In the interview, he also reiterated his past view that the UK government should not agree to continue to adopt EU financial services regulations after Brexit, given the size of the UK’s large financial industry.