In a speech by Mervyn King to the LSE last night he said separately, none of the tools he had at his disposal alone could have staved off the global downturn.
“Although we think the new tools given to the Bank would have helped to alleviate the last crisis, it would be optimistic to rely solely on such tools to prevent all future crises.”
“Monetary policy cannot just ‘mop up’,” he said.
“Risks must be dealt with beforehand. I do not see this as inconsistent with inflation targeting because it is the stability of inflation over long periods, not year to year changes, which is crucial to economic success,” he added.
King cited Federal Reserve, chairman Ben Bernanke’s comment that “the issue is not whether central bankers should ignore possible financial imbalances – they should not – but, rather, what is ‘the right tool for the job.”
“The key principles underlying flexible inflation targeting are credibility, predictability and transparency of decision-taking, and they will remain the cornerstone of successful monetary policy in the future,” said King.
