Carney’s comments seen as ‘Brexit’ warning, pushing pound down most in two weeks

OTTAWA – With regards to monetary policy, it’s not always about who says what – nor even really the things they say. It’s much more about the way they express it and to whom.

Case in point: Mark Carney’s comments to the U.K.’s treasury committee Tuesday.

The head from the Bank of England, and former governor of Canada’s central bank, ruffled lawmakers’ feathers when he ublicly acknowledged the obvious: A victory for advocates of Britain’s exit in the European Union, which goes to referendum around the June 23, could take a large chunk from the country’s US$2.9-trillion economy.

Nothing new there – that’s long been the concern of those in opposition to an english exit, or “Brexit.”

But markets being what they’re, the British pound immediately lost probably the most in 2 weeks against the euro currency.

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As well, Carney told the committee the country could lose banking institutions – and foreign investment, along with them – in the event the “Leave” camp was victorious.

“I’d say numerous institutions are contingency planning that possibility,” Carney warned.

“There might be lower levels of activity because of the amount of uncertainty that could affect investment and household spending,” he explained. “To state the obvious, economic questions are essential questions with regards to the broader decision the folks from the U.K. have to make.”

The pound lost 0.8 per cent of its value on Carney’s comments, falling to 77.832 pence against the euro – the biggest drop since Feb 23.

All which begs the question: Has got the bank governor overstepped his purview as monetary chief?

In the past, Carney has said he desired to avoid being drawn into the Brexit debate, a difficult task when the “Leave” and “Remain” sides happen to be firing in the rhetoric and his ultimate boss, U.K. pm David Cameron, is risking his political future on keeping the country within the EU.

Why don’t I be a circus clown?

The governor has, until now, maintained that monetary policy officials wouldn’t provide an assessment around the impact of the British withdrawal from the EU. But , one U.K. lawmaker questioned Carney’s impartiality.

“You are developing the conventional pro-European Union group” lines, said Jacob Rees-Mogg, person in the ruling Conservative Party. “It is underneath the dignity of the BOE to be making speculative pro-EU statements.”

Carney, of course, denied his position parroted that of the U.K. government.



“We were not relied on by anyone,” he told the committee. “It wouldn’t make any difference when they tried.”

But history shows the current BoE governor is not shy when it comes to pushing the envelope on policy remarks.

In fact, prior to leaving Ottawa for London in 2013, Carney had been noted for scolding Canadian manufacturers for located on “dead money” rather than investing their cash holdings to expand export markets, or arguing this year from the view that a Canadian form of so-called “Dutch Disease” – a term originally accustomed to explain the decline in factories within the Netherlands as oil production increased that nation’s wealth in the 1970s – was hurting western provinces.

Then there is Liberal affair – a rumour denied by Carney but relentlessly pursued through the media – in which he would be placed as an alternate leadership candidate to Justin Trudeau.

The governor’s response was pure Carney: “Why don’t I be a circus clown?”

Outside the entertainment ring, central bankers have often been a lot more than dry monetary functionaries.

Take Mario Draghi, the top from the European Central Bank, who this year – with only one line – possibly changed the course of a then-fracturing continent, promising to do “whatever it takes” to repair the single-currency zone. “And trust me, it will likely be enough.”

Draghi’s comments bolstered the euro, proof that, for central bankers, sometimes speaking their minds can in fact pay off.

Financial Post

gisfeld@nationalpost.com

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