The Bank of England may need to make its primary tool to mitigate swings in bank lending more strongly to counter future economic downturns if interest rates stay low for the long term, Deputy Governor Jon Cunliffe said on Monday.
His comments welcomed those of other members of the BoE’s Financial Policy Committee, who have suggested that the BoE’s anti-cyclical capital buffer – designed to limit lending during boom times and its downturn – could not be powerful enough in its current form.
“The release of buffers can have a powerful effect on a downturn by reducing pressure on banks to reduce lending and thus avoiding a credit crisis by tightening the macroeconomic shock,” Cunliffe said in a speech to the Association of Professional Economists in London on Monday.
“Perhaps the question is whether that buffer should become more powerful in a low world for a long time given the greater risk of severe collapse.”
Cunliffe also made the biggest suggestion so far that the BoE could look at bringing macro-prudential tools for market-based financing, a term used to describe investment funds from outside the banking system, for example by asset managers. .
“The macro-prudential asset package is incomplete. In most jurisdictions it is far better equipped to identify and mitigate the risks posed by the banking and insurance sectors than to market-based finance,” Cunliffe said.
“This gap needs to be addressed in my view.”
Answering questions after his speech, he also said it was too early to say that more coordination between monetary and fiscal policy was needed.
Earlier Monday, the finance ministry said the rules for the budget would be revised and that they “would keep control of our national debt”.
“Whether and how monetary, and perhaps fiscal, frameworks have to be adapted to a world of low structural interest rates is a related but separate issue that is receiving considerable attention from academic research and, more recently, creators of policies in some jurisdictions, “Cunliffe said.
“The discussion is at a relatively early stage and these are, in my opinion, issues that would need careful discussion.”
In Brexit, Cunliffe rebelled against the widespread view among economists outside the BoE that he would almost certainly be forced to cut interest rates in the event of a Brexit without a deal to help demand.
“What we do is not always reflected in what people think,” Cunliffe said in response to a question following his speech, adding that some people had not expected the BoE to raise tariffs, as it did, prior to any agreement. the Brexit transition.
On Friday, BoE Governor Mark Carney said it was his view that BoE would do “all we can” to support growth in such a Brexit outcome./Investing.com
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