The sharp slowing in India’s economic growth has had a “notable” impact on advanced economies, according to Mark Carney, governor of the Bank of Canada.
Answering a question from Business Standard here, the head of Canada’s central bank, recently named the next governor of the Bank of England, noted the economies of India, Brazil and China had all slowed this year, though for different reasons.
Carney said he would not offer advice on ways to tackle India’s problems. “I don’t want to prescribe what the RBI (Reserve Bank) or the government of India should do to address the structural and monetary challenges there. You have a very capable governor in Governor Subbarao and a very capable team, so they’ll do the right thing,” he said, while also quipping that central bank governors tended to be a “mutual admiration society”.
When asked if he agreed with the assessment in some quarters that loose monetary policies in developed countries was contributing to inflation in an emerging economy like India, he was vehement that those policies were necessary in some advanced economies. “The major advanced economies, the US, Europe and Japan, have disinflationary to potentially deflationary pressures that can only be prevented by very expansionary monetary policy,” Carney told Business Standard. He said it was in the interest of “everybody on this planet” that the US and other major advanced economies should grow.
Their central banks, he said, were doing exactly the right thing towards that objective. Carney noted Canada was the largest trading partner and the largest financial intermediary of the US, and it also faced the greatest exposure to spillover from a loosening US monetary policy. Yet, he said, “We unambiguously, unreservedly, recognise the appropriateness of the stance of the (US) Federal Reserve’s policy, given the forces hitting that economy.” Carney acknowledged the Fed’s policy had an impact on Canada’s currency but said it was still a net positive for the Canadian economy. “We manage our monetary policy accordingly,” he added.
Earlier, addressing a meeting of Canadian financial analysts organized by the CFA Society here, Carney said forward policy guidance was best used sparingly by central banks in normal times. “It does not appear that markets take systematic account of the guidance offered by a published path beyond the very near term,” he felt.
The 47-year-old Carney, who will take over as governor of the Bank of England next year, will be the first foreign head of that institution. He is also chairman of the Switzerland-based Financial Stability Board, set up following the G-20 summit in 2009.