UPDATE 1-Next BoE chief Carney signals flexibility on inflation target

Wed May 1, 2013 6:09pm EDT
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* Says OK sometimes to let inflation run above target for longer

* Acknowledges limits to flexible inflation targeting

* Says weak growth no reason to dismiss quantitative easing

* Forward guidance has positive effects

EDMONTON, Alberta, May 1 (Reuters) - The next Bank of England governor, Mark Carney, endorsed on Wednesday the idea of sometimes letting inflation run above target for longer than normal, while also warning of the risks to credibility if this is taken too far or done too often.

Carney, governor of the Bank of Canada till June 1, sang the praises of flexible inflation targeting, saying tighter monetary policy might be needed to prevent imbalances from developing and looser policy might be needed to avoid further damage to the economy.

The Bank of England has let inflation run above its 2 percent target even while it pursues an extraordinary amount of monetary easing, keeping interest rates at 0.5 percent for four years and engaging in buying massive amounts of government debt in a bid to spur economic growth.

"The weakness of growth since quantitative easing was introduced is not itself a reason to doubt that it is an effective policy," he said in a lengthy lecture in Edmonton, Alberta, examining the lessons learned from five years of financial turmoil.   Continued...