The global economy is heading to a “liquidity trap” as central banks are running out of ammunition to head off a deeper downturn, Mark Carney has warned.
The outgoing governor of the Bank of England suggested further loosening of policies in an attempt to avoid recession could prove fruitless.
In an interview with the Financial Times Carney said: “It’s 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 this situation will persist for some time.”
He went on to say that this risk meant there was a need to look for supplements to monetary tools, including interest rate cuts, quantitative easing and guidance on future interest rates.
Carney added: “If there were to be a deeper downturn, [that requires] more stimulus than a conventional recession, then it’s not clear that monetary policy would have sufficient space.”
In December, FCA chief executive Andrew Bailey was picked to succeed Carney as Bank of England governor.