LONDON (MNI) – The Bank of England Monetary Policy
Committee has been right to let inflation run above target for a
prolonged time, Governor Mervyn King says.
In his speech at the London School of Economics King set out the
case for central banks aiming “off target” to try and reduce the risk of
future financial crisis and in the Q and A he argued the MPC has been
justified in accomodating a lengthy run of CPI outturns above the 2.0%
target in order to avoid a recession.
King also said that he had concerns about the limits of monetary
policy and doubts that it could continue to stimulate demand by bringing
forward future spending into the present.
CPI rose above its 2.0% target in December 2009, hitting 5.2% in
September 2011 before declining to 2.5% in the most recent, August,
data.
“If you look back over the last three or four years … we have
accepted a overshoot of the inflation target for a longer period than we
would have wished in order to prevent what would had have to have been a
much deeper recession in order to keep inflation closer to the target,”
King said.
“There may be other reasons in the future for accepting an
overshoot, or indeed an undershoot of inflation, below the target, not
forever but for a period few years, in order to make it less likely that
the risk of financial instability would build up,” he added.
-London Bureau; Tel: +44207862 7491; email:drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]