Bank of England Governor Mark Carney says that the forward guidance which was introduced in August and is already close to expiring has been a success on any criteria.
Carney, in a joint interview with Fairfax media, strongly rejects the argument that the brief life of forward guidance based on a 7% jobless threshold proves it was a failure. The jobless rate plunged from 7.7% when guidance was introduced to just 7.1%, before nudging up to 7.2% in the three months through December.
In the February Quarterly Inflation Report, the BOE Monetary Policy Committee unveiled the successor regime to threshold based guidance – based on a wide range of measures of economic slack and with no precise numbers attached.
Carney says business got the message “loud and clear” from the first phase of forward guidance.
“It made them more keen to hire and more keen to invest. We are now the fastest-growing major economy,” he says.
“It’s hard to find a criteria by which you would not judge it successful,” Carney adds.
The BOE Governor says the tricky stage for the MPC was not the first phase of forward guidance but the next one. In the first phase the committee just stipulated what it would not do – tighten policy until the 7% threshold was reached.
In the next phase it has to offer guidance on what it will do – tighten policy – and under what criteria it will do so.
In other remarks Carney defended the global regulatory push to get systematically important banks to have a maximum leverage ratio, denying it was a blunt regulatory instrument and too tough.
He said at a typical large mining company the leverage ratio might be two-to-one.
“The leverage ratio for banks, this ‘big blunt horrible instrument’, is 33 to one,” Carney says.