Central bankers are running out of ways to fight a recession and the global economy could be heading towards a “liquidity trap”, according to Mark Carney, the governor of the Bank of England.
A liquidity trap is a situation in which interest rates are low and saving rates are high, rendering monetary policy ineffective. Consumers then choose to avoid bonds and keep their funds in savings.
“It is generally true that there’s much less ammunition for all the major central banks than they previously had, and I’m of the opinion that the situation will persist for some time,” Carney said in an interview with the Financial Times.
Carney was, however, positive about the U.K.’s prospects after Brexit and further recommended that governments consider fiscal policy tools when tackling a downturn.
During Carney’s appointment as governor, Britain was in a tough position financially and in conflict over whether it was headed for a triple-dip recession.
Carney, who will soon take up a role as a United Nations special envoy for climate action and finance, is set to be replaced by Andrew Bailey as head of the Bank of England in March this year.
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According to the governor, the main task of the British central bank was to finish core reforms to the global financial systems and insisted that the bank had a duty to preserve financial stability.
He noted that the bank had to do more than pray that the issue of climate policy will be addressed and said that without wider agreements to limit global warming and action to enforce targets, the financial sector could not mitigate global warming alone.
