BoE's Carney says rise in real wages not pre-condition for rate hike

LONDON Sun Aug 17, 2014 12:16am BST

Bank of England Governor Mark Carney speaks during the bank's quarterly inflation report news conference at the Bank of England in London August 13, 2014. REUTERS/Suzanne Plunkett

Bank of England Governor Mark Carney speaks during the bank's quarterly inflation report news conference at the Bank of England in London August 13, 2014.

Credit: Reuters/Suzanne Plunkett

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LONDON (Reuters) - Bank of England Governor Mark Carney said in a newspaper interview he would not have to wait for real wages to turn positive before raising interest rates.

Carney signalled during the Bank's quarterly inflation report on Wednesday that it remains on course to raise interest rates from 0.5 percent early next year but only if wage growth picks up.

He told the Sunday Times: "We have to have the confidence that real wages are going to be growing sustainably (before rates go up). We don't have to wait for the fact of that turn to do so."

He also warned that some British banks may have to raise extra capital as a result of the regulator's stress tests which will be published in the autumn.

Banks have, however, made "substantial progress" on the road to normality, he added.

Both the economy and the banking system are now “much more than halfway towards that finish line,” he added.

Carney also defended a loophole that is being exploited by Britain’s banks to duck a European cap on bonuses worth more than 100 percent of salary. They have been paying cash “allowances” to their top performers to get round the cap. The governor said that these allowances, if properly designed, could be “sensible”.

In the interview, conducted on Wednesday, Carney also said the pound’s 17 percent gain from its low in March 2013 would not prevent a rate rise. “Even with . . . that appreciation, inflation gets back to target by the end of the forecast period because slack narrows,” he said.

Carney would be “comfortable” being the first of the big four central banks to increase rates after the financial crisis. “Monetary policy is heading in a different direction in at least two of the four [countries] . . . We will do what we need to do," he said.

Next week's publication of the minutes of the Bank's August policy meeting about a tightening of monetary policy this year might show at least one policy-maker cast a first vote in favour of a rate hike, potentially putting markets back on alert.

(Reporting by Stephen Addison; Editing by)

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