Bank of England's King says time to review inflation remit
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The Bank of England's inflation-targeting remit needs to be fine-tuned but should not undergo fundamental change, central bank governor Mervyn King said in a speech on Tuesday.
He also said that the central bank was ready to restart bond purchases or cut interest rates if needed to boost the economy, but that Britain needed more fundamental reforms if it was to exceed the "gentle recovery" he expects for 2013.
King steps down in June, and his successor Mark Carney, head of the Bank of Canada, has promoted long-term commitments to low rates, which are also in favour at the U.S. Federal Reserve.
To date the Bank of England has been unenthusiastic about explicit interest rate commitments, arguing its existing policy framework is clearer than other central banks'.
And finance minister George Osborne, who ultimately decides the bank's goals, said last month that while he welcomed debate, there would need to be a strong case for change.
However, in what is likely to be his last speech to be delivered outside London, King said that it was time for the Bank and the government to think again.
"Recent actions by central banks and governments in a number of industrialised countries have raised questions about the frameworks within which monetary policy is being conducted," he said. "In the UK ... it would be sensible to review the arrangements for setting monetary policy," King said.
The changes King appears to have in mind are small, and Sam Tombs, a UK economist at Capital Economics, said his remarks may have been aimed at forestalling calls for bigger changes.
"King used his speech to pour cold water on recent clamours for a change in the monetary policy framework and ... emphasised the merits and successes of the current regime.
"However, he conceded that the current framework could be reformed ... (and) perhaps hinted that he is open to the Bank mirroring the U.S. Fed's recent guidance," he said.