SIR Mervyn King told MPs yesterday that financial markets had “jumped the gun” with turbulent reaction to the US Federal Reserve chairman’s comments last week that the American central bank might begin to soft-pedal on quantitative easing.
King, who steps down as governor of the Bank of England at the weekend, said: “I think the view that we are definitely at the beginning of the end [of cheap money], that we are definitely at the point where we need to raise interest rates, is a premature judgement about where we are, and no central bank has moved rapidly down that course.”
He said US Fed chairman Ben Bernanke “has merely said the easing in which it [the Fed] is still engaging may taper at some point depending on economic conditions”.
But King said his US counterpart had made it “100 per cent obvious” that any tapering would depend on economic data. “No-one would sit down today and say this is the path on interest rates we will follow. That would be crazy,” the governor added.
Along with two other members of the BoE’s monetary policy committee (MPC), King has consistently voted for an additional £25 billion of UK quantitative easing – buying gilts off banks to give them more firepower to lend to the economy – since February. But the trio have been outvoted by the other six members of the MPC.
The UK has also had historically low interest rates of 0.5 per cent since March 2009, when the country was in an extended recession that shrank the economy by 6 per cent.
King, who will be replaced by former head of the Canadian central bank, Mark Carney, also said politicians had so far wasted the opportunity afforded by ultra-loose monetary conditions to put in place supply side reforms to boost the UK’s productive capacity.
Asked about any advice he would give to his successor, King said: “He should be himself. Governors change. It’s very important each governor is true to themselves. Trying to fit into a mould doesn’t work.”