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Trade and fiscal policy action needed to avoid global 'liquidity trap' - BoE's Carney

FILE PHOTO: Mark Carney, Governor of the Bank of England speaks during a Bank of England Financial Stability Report news conference in London, Britain December 16, 2019. Kirsty Wigglesworth/Pool via REUTERS

LONDON (Reuters) - Central banks risk their policy tools becoming ineffective unless there is better cooperation from governments on trade and fiscal policy, Bank of England Governor Mark Carney said on Tuesday.

“In a global liquidity trap, central banks cannot be the only policymakers who do ‘whatever it takes’, Carney said at a dinner in Frankfurt hosted by the European Central Bank.

Former ECB President Mario Draghi famously promised in 2012 to do whatever it took to resolve the euro zone debt crisis.

More than a decade after the start of the global financial crisis, interest rates in Britain and the euro zone are still close to record lows - giving central banks little firepower for when a future downturn comes.

“There are clear gains from coordination, with other policies - particularly fiscal policy - having important roles,” Carney said. Reduced trade tensions would bring the biggest gains for the world economy, he added.

Carney has spoken on this theme before, and said his latest remarks should not be read as a hint about what the BoE will do when it announces its December interest rate decision on Thursday.

“The challenge now facing the ECB - and monetary policymakers more broadly - is to provide sufficient stimulus to meet its price stability objective when powerful structural forces are pushing down equilibrium interest rates,” he added.

Reporting by David Milliken; editi9ng by Stephen Addison

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