November 28, 2012 5:28 AM GMT
Mark Carney, incoming Bank of England governor, is due up at the Treasury Select Committee at 09:45 when he is expected to give a flavour of how he would handle UK monetary policy at the central bank.
Described by Chancellor George Osborne, who selected Carney for the role in November, as the “outstanding central banker of his generation”, the new governor will take control in June when Mervyn King steps down after a decade at the top.
Reuters reported Citi economist Michael Saunders as predicting “quite a few changes” at the central bank under Carney, including a more flexible inflation target, giving clear guidance on the time at which interest rates will remain low, a further rate cut, and further asset purchases.
In past public statements, Carney has already said that he is open to the idea of growth rate targeting, on top inflation, being part of the Bank of England’s remit.
Some are starting to argue that the world’s central banks are running out of steam in the push towards economic recovery, and that monetary policy is becoming less and less effective as the downturn drags on.
However, Carney is optimistic about the power of monetary policy.
“There remains considerable flexibility, which includes the use of communications and other unconventional instruments over the right horizon," he said at a recent press conference.
Ex-Goldman Sachs man Carney will also come to the Bank of England at a time when it is taking over regulatory control for the financial markets from the FSA, which is being scrapped under banking reforms currently working through parliament.
In London's business newspaper City AM, James Barty, the head of financial policy at think tank Policy Exchange, lists five questions he thinks Carney needs to answer in the TSC hearing.
First is the organisation of the bank and if he will shake up his senior team, as well as how he intends to run the bank. His predecessor King has been accused of being dictatorial and people both inside and outside the Bank of England are wary of someone similar coming in.
Secondly, exactly what monetary policies Carney thinks will be effective in boosting the economy.
Finally, how Carney would measure his performance at the end of his five-year tenure.
As Carney’s hearing takes place the Bank of England’s Monetary Policy Committee is meeting over on the other side of the city.
Currently, the key rate is at 0.5 percent, its record low, as it has been for over three years now.
The central bank’s quantitative easing programme, the asset purchase facility, is at a total value of £375bn.
No extension of gilt purchases under this QE programme is expected from the February MPC meeting, but many economists think an extra £50bn will be added to the target value in the coming months.