The global economy is running low on ammunition to fight a severe financial crisis, due to low interest rates, Bank of England (BoE) Governor Mark Carney warned in an interview published in Wednesday’s edition of the Financial Times.
“There’s much less ammunition for all the major central banks than they previously had,” Carney said, “and I’m of the opinion that this situation will persist for some time.”
He added that “if there were to be a deeper downturn [that requires] more stimulus than a conventional recession, then it’s not clear that monetary policy would have sufficient space” when the world’s major central banks are finding it difficult to emerge from the extremely accommodating monetary policies they adopted in the wake of the 2008 crisis.
With an interest rate of 0.75%, raised twice during Carney’s term, which ends in mid-March, the BoE has a little more “ammunition” than the European Central Bank (ECB), but less than the U.S. Federal Reserve.
The ECB’s benchmark rate is now 0% and its deposit rate applied to banks is even negative. The Fed’s benchmark rates are between 1.50% and 1.75%.
While recognising that it is not for central bankers to be involved in budget policy, Carney agreed with the ECB and its new head, Christine Lagarde, who recently urged governments to do more to stimulate growth.