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Carney's Canadian approach in England

Mark Carney is already causing ripples in Britain in his first week as governor of the Bank of England, even though his methods would be considered old hat in Canada.

Eschewing past practice, the British central bank went beyond simply announcing no changes to the 0.5 per cent key interest rate as it also published a statement explaining the reasoning and suggesting rates would remain depressed for some time.

The dovish statement had the effect of boosting equity prices in England and dropping the pound one cent to $1.51 US.

Under the previous governor, Mervyn King, the bank would typically issue no comment when policy was left unchanged.

But instead the central bank gave some indication where matters are heading by declaring that "the implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy."

It also said it would provide an assessment next month to Treasury chief George Osborne on whether the bank should use forward guidance, a tool Carney introduced in Canada in the spring of 2009 to give markets and investors long-term assurance on interest rate expectations.

"It does appear that the committee are already moving towards more communication on their decisions and towards providing forward guidance on monetary policy," said Howard Archer, IHS Global Insight's chief U.K. and European economist.

Alistair Cotton, a senior analyst with Currencies Direct, said any forward guidance on interest rates would be "warmly greeted by homeowners (with variable mortgages) ... who will be in a better position to budget and even forecast the right time to lock in."

 

The Canadian Press


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