LONDON (Reuters) - Central banks should consider targets beyond keeping inflation in check, given the severity of fallout from the financial crisis, UK Financial Services Authority Chairman Adair Turner said on Wednesday.
In a wide-ranging analysis of the difficulties being faced by policymakers to boost sluggish economies, Turner said a fundamental rethink may be needed in strategy.
Over the past three decades central banks have focused on keeping inflation within a certain target over the medium term but relying only on this core task is now being extensively challenged.
Mark Carney, the Bank of Canada governor who will take over the top job at the Bank of England in July - a post Turner had also applied for - has suggested a range of goals such as targeting a certain level of nominal gross domestic product.
Turner said such alternative targets should be considered as the ability of central banks to manage medium-term interest rate expectations may be seriously undermined given that interest rates in Britain and elsewhere are close to zero.
He said the more attractive alternative targets included a pre-commitment to keep rates low until and unless unemployment or inflation targets are met - the approach taken by the Federal Reserve.
“But there are also strong arguments for making any such shift temporary and for focusing strongly on how to achieve exit from a temporary regime, reverting to an inflation target when appropriate,” Turner told students at the Cass Business School in London.
Carney on Thursday will be grilled by a panel of British lawmakers on his appointment and ideas he has aired for boosting economic growth.
Turner’s current job ends next month when the FSA will be scrapped and the Bank of England becomes the main regulator for banks in Britain.
Reporting by Huw Jones; editing by Stephen Nisbet