The next Bank of England governor Mark Carney said on Wednesday a key lesson he will bring from Canada to his new job is the need for clear objectives and communication about what exactly the central bank aims to achieve with its policies.
Carney, who steps down as Bank of Canada chief in June to take over at the Bank of England in July, said that during the 2008-09 recession in Canada, having a well-understood inflation target helped policy makers explain directly to Canadians how they planned to stimulate the economy and boosted confidence.
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"I think the core lesson that was reinforced and that I have an even greater appreciation for now than I had when I started as governor, is the importance of having clearly articulated policy frameworks," Carney said when asked what lessons he would bring to the Bank of England.
"That's not a very snappy thing to say but it's absolutely essential," he said in his testimony to a Senate committee.
Expectations are high for Carney as he gears up for a daunting task: turn around Britain's ailing economy, fix its banks and overhaul the Bank of England.
Under his watch, Canada's recession was milder than that of the United States or the United Kingdom and it has since recovered. At the height of the crisis, the central bank dropped its key interest rate to an ultra-low level of 0.25 percent and, in its most innovative move, pledged to keep the rate at that level for more than a year unless inflation picked up.
Carney said Bank of Canada officials "reached over the heads of commentators and spoke directly to Canadians" about the low cost of borrowing, persuading them to spend and boost growth.
But the bank never had to resort to unconventional policy such as buying bonds, as done in the U.K., the U.S. and Japan.
Despite the differences with the U.K., Carney stressed that unconventional policy should also be guided by clearly communicated principles and frameworks that the public can understand.
"I prefer not to comment too much on the U.K. but I think the benefit of the institution to which I'm going, one of the benefits, is a tremendous amount of thought has been given ... by the institution itself but ultimately decided by the government and parliamentarians, to the framework that the Bank of England has," he said.
The Bank of England has much broader powers than the Bank of Canada, encompassing regulation of banks and financial stability as well as monetary policy. Each area of work should have its own separate framework, Carney said.
"And they also have to think through, and they have thought through, how the three of those interact within one institution," he said.
(Reporting by Louise Egan; Editing by Carol Bishopric)