LONDON (Reuters) - Bank of England Governor Mervyn King questioned the need for a shake-up in how the central bank focuses on fighting inflation, days before Chancellor may announce a change in how he wants the bank to work.
“I‘m not sure there is any call for major change in the remit,” he told ITV News on Friday. “Most important is the commitment to the target of 2 percent (inflation).”
“Of course what we’ve seen through the financial crisis is there are difficult judgments to be made about the short run trade-offs between inflation and growth and I think it’s perfectly reasonable to ask questions about how those judgments are made,” King was quoted as saying.
Chancellor George Osborne, is expected to announce a review of the BoE’s inflation-focused remit, or possibly outright changes to it, when he presents his annual budget on Wednesday.
With little room to change taxes or spending because of his austerity programme, Osborne may seek to give more room for the central bank to loosen monetary policy further to help an economy threatened again with recession.
King is due to retire in June and his successor Mark Carney, currently the governor of the Bank of Canada, has called for a debate over the role of the Bank.
One possible change to the Bank mentioned by economists has been the replacement of the 2 percent annual inflation target with a 1-3 percent range.
King, who was instrumental in creating the bank’s inflation-targeting regime in the early 1990s, said there was no reason for the Bank to adopt another possible change to its remit - giving the bank a target to boost jobs alongside its inflation one, similar to the U.S. Federal Reserve’s dual mandate.
King has long argued that the target does not restrict the bank from supporting growth. The Bank tolerated inflation above 2 percent for much of the last five years as it tried to prevent Britain from falling into a deeper slump.
As well as cutting interest rates to 0.5 percent, the bank has bought 375 billion pounds worth of British government bonds in an effort to spur growth.
King told ITV that more bond-buying could be in store given the still fragile state of the economy.
“What I see are signs of a recovery, and I think there is a case for supporting that through additional asset purchases,” he said. “One can take different views on it and some of my colleagues do. I do think that during the course of 2013 there are reasons to suppose that we will start to see a recovery.”
King was among a minority of the Bank policymakers who voted in favour of more bond-buying by the bank at a meeting in February. The bank again voted against more quantitative easing in March. Details of that meeting are due to be released on Wednesday.
Reporting by William Schomberg and David Milliken; editing by Ron Askew