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Next BoE governor floats ditching inflation target

The next governor of the Bank of England Mark Carney has suggested central banks should consider moving away from targeting inflation if economic growth is low, according to reports.

Mark Carney 480

At the moment, the BoE’s aim is to deliver price stability through low inflation. Price stability is defined by the Government’s Consumer Prices Index inflation target of 2 per cent.

If the target is missed by 1 per cent either side, the governor of the bank must write an open letter to the chancellor explaining why it has happened and what the bank will do to bring inflation back to target.

According to the FT, Carney (pictured) said banks should consider more radical measures – such as commitments to keep interest rates on hold for an extended period of time and numerical employment targets – when interest rates are near zero.

According to the paper, if those measures fail to have the desired effect, Mr Carney said central banks should consider scrapping their inflation targets.

He said: “If yet further stimulus were required, the policy framework itself would likely have to be changed.”

He said the benefits of any regime change “would have to be weighed carefully against the effectiveness of other unconventional monetary policy measures under the proven, flexible inflation targeting regime”.

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