system.gating complex an exclusiveth interview. governor carney, welcome to bloomberg. you said in july the timing of

the rate increase would be clear at the end of this year. >> thank you for having me on. july, given our forecast, the decision about whether or not to begin the process of raising interest rates would come into relief at the turn of the year. it is coming closer. the progress has been in recent months, there has been progress. but it has been mixed. domestic cost growth has picked up in line with our expert patients. the imported costs have been softer. it is mixed but we still have a situation where domestic demand resilient and private

fine.ic man demand is >> what is speaking you is the emerging markets. recoiling thatre prospects have weekend. how much does that oblige china? >> what we did is we took down our median term expect markets. the u.k. is much more exposed to europe and united states. it is slightly derivative. we took down the medium-term prospects to such an extent that it has an effect on our prospects. by forecast has gone down three quarters of a percentage point over two years.

principally because of the chinese economy, the rate of growth is slowing to 6%. so certainly china is at the center of this but this is not just a china story. >> you have said about china's numbers being murky. and the prospects of banks inside china. how much do you worry about how much bad stuff there is on the balance sheets of chinese bangs? >> anytime you have a sharp increase in credit growth as you have in china, and non-japan asia one can expect at some point there will be an uptick. we have not yet seen that. the increase in private aggregate credit in china has doubled in the last five years. as the economy slows, as normal china, let's put

a figure on that, chinese normal growth was 20% in the immediate aftermath of the crisis. present.at the one would expect that would be an increase in nonperforming loans and banks would have to adjust to that. is they have to actually starred not performing before you measure them. it is more prospective than actual. chinese banks have a strong capital position. chinese authorities are aware of these risks and will take appropriate actions but there is a process of adjustment. >> are there any other emerging countries you are worried about? >> there are a series of issues across latin american markets. there are a few dynamics here.

we all know the commodity super cycle has come to an end. there's a direct results. that impacts brazil and chile and a variety of african countries. the shifting capital slows has been marked of the course of this past year. the sustained capital outflows back into this area. potentially reinforced by advanced economy monetary policy. but that also has an impact. and then there's just the sort of structural reform. >> disappointing. >> yes. >> even a country like brazil. >> yes i don't want him a dozen countries but i would say as a whole and this is a familiar tale when capital is flowing in, credit conditions are easy you can do latest types of things now suffer decisions and to be made. our assessment is that's these

are not idiosyncratic issues. that's why we made the bigger adjustment. >> can ask you one more thing about china? many people look forward to rebalancing of the chinese economy. that seems to be happening yet it doesn't seem to the surly be a good thing. >> it's early. i think it is a good thing. it is positive. that's one of the reasons why this breakdown between historic relationships between industrial markets and chinese growth. we see more. the latest -- even last month was positive. some of the possibilities introduced on the currency actual and perspective. in the media and, there's a more sustainable rate oowth i china, but it's the second biggest economy in the world.

we will all have to dealith the puffiness that comes with it. >> the largest economy. yesterday there is a live possibility the federal reserve will raise rates. what is your own personal guests about when they will raise rates? >> our expectations are that they will do what's necessary to achieve their ends. >> that's very great. >> it is but it's also well-funded. >> you must have some basic scenario about when you expect rates to raise us to mark >> in the end the way we look at it is they will pursue an interest rate adjustment. they're consistent with keeping stability, the u.s. economy is performing quite well. it's performing reasonably well. we see going in high twos.

over the course of our forecast. that is material for demand in the u.k.. it's why we see our economy continuing to do well. i would say i make the point in a press conference today i think there will be as transparent as they can about the decision that they have not yet taken. it feels very familiar. in fact .0 of strength make earlier is that it's familiar to all bankers because there is not a -- >> she's a bad girlfriend. >> she can be. you have to deal of events as they come through.

when i say i'm confident they will take the -- was not necessary, it's because i have a reasonable understanding of the reaction function. >> in terms of your timing and it's good to play the plucky little england's and we don't need to worry what's happening in america, but surely we do or it if america does risk trade >> what matters most is the reasons why u.s. monetary policy adjusts. so expected to adjust because the economy has continued to grow about trend. it's appropriate to do so. i frequently remind people of this and going to remind you as well all one can look at his past history. since we became an inflation target it's been five cycles and the five times the bank has moved the fed. this recovery in the u.k. started after the recovery in

u.s.. you're catching up. we are now a place where we are more or less at level pay in terms of the cute little growth. we may have a little more flexibility than markets in the u.s. because more people have stable jobs in the u.s.. but we are informed by with happening in the u.s.. we will take our decisions based on what's right for england. >> kinesis only about inflation? not just in the u.k. that all around the west. people are struggling with the same thing inflation is very low. is there something about modern economies that is suppressing inflation? do any to start rethinking the language? >> i think what has happened is we had a very severe shock. once a global demands as you

know and that's multifaceted, the other has been that -- in part because of financial crisis and in part of the broader factors. the equilibrium interest rates -- interest rates that are consistent's with the inflation target at progressively fallen over the years. aggressively so in the aftermath of the crisis. the ability of central banks has been challenged. arguably they've been catching up. now i would argue about the u.s. in the u.k. what has happened in the last several years has been that because of the repair of the financial system, because the paydown by dead. because of some of the repair on fiscal side those equilibrium interest rates have been gradually increasing and were getting more traction with monetary policy. that's the good news. if you are relatively small like the u.k. you face a bit more because of global disinflation. in relative terms we import more global disinflation.

it matters a bit more than a dozen u.s. which is relatively closed. we are -- relative domestic strength. a robust private sector u.k.. >>'s core inflation now matter much more to you? >> i think it's important. my personal view is it is important because of disinflation. it shows up through core inflation. prices adjust relatively quickly in the exchange rate goes up. for prices go down. >> it takes a while to filter through to the end. and so we have to be conscious of these. there is some persistence. one of the things you said today was that we have adjusted our

horizon for which we were told inflation target. we recognize we might not be able to get inflation back as quickly as we previously thought. they were just a one-time dropping prices for example. there are and more persistent factors. the means it takes is longer to get back to target conversely that means that monetary policy would also be equal -- the little tiger that it was with the. >> that's for the pressure comes from? >> that's what the pressure country. once these foreign factors has to economy, were ovehooting the inflation target. so we need to balance those a bit better. >> george osborne doing a meaningful job of restricting

things. how much of your job is to balance that? >> the way i put it is we go to central bank. the bank of england. i can aggrandize and -- this will policy move slowly. it's in place will have certain impacts. and then we try to achieve our goals. it really is only in extreme circumstances. one central banks should ever way and on fiscal policy. that's only when the fiscal policy actually threaten the ability of the central bank to achieve its objectives. that's certainly not the case in the u.k.. >> one other thing which worries outside investors a lot is the prospect of a grexit.

there's limited on what you can say about that but it's what's the thing that worries you most about it? what you think would hurt the financial side of britain if that would happen? >> i think this is another case where we take it as a gift. uk's member of the european union. >> we do have to do contingency planning. this is an example. we will -- we are doing that. we will never disclose or contingency plans in advance. we only disclose them once the issue is passed. >> which bit of it would worry you? what should both try to cover? >> the issues around our relationship with the european

union of these details not just in a speech but in an associated report, i think the general point from a macroeconomic perspective is that the u.k. runs a very large current account deficit that's natural given the economy. that deficit needs to be financed. it is financed with very solid largely long-term investments. it's important that this economy continues to be the attractive to -- destination for foreign capital. our contribution to that is military and financial stability and we will continue to do that. our policy is continue to invest. >> they can invest in confidence. >> you said in july you were worried the u.k. would not be

able to resolve. is that still the case? is that good news? >> it may not be an exact quote. not for the first time i might add. the point we were making -- we are diligently working on ensuring that we have all the tools that u.k. to resolve major banks. so for licenses institutions. we will announce next week and agreements on loss observing capacity. is in the u.s. announcement. this is the defining moments to unlocking too big to fail for individual institutions. now having the capital structure agreed you then have to go through several years were banks reorganize capital structure and also business models.

and when you get to the end of that of course the next few years you say look we think we can bubble -- with respect to specific questions we are very just at the bank of england and have for the have almost five times gdp. with the financial sector that is on the road to being 10 to 15 times gdp as a whole. we need to have that organized in a way that is resilient. including banks. we're putting in place all the tools necessary for that's the case. just next week, we are having a public event. it's relevant to this because one aspect is that -- a recognition that the progress that has been made for institutions and markets in this economy this country this society can confidently sustain

the financial sector the size. >> on the question of public credibility how much actually came down to issues of liquidity? to making capitalism work for people? liquidity seems to be big part of it. people seem to be very angry about thanks liquidity is moving towards numbers. is that good news or bad news? >> it's good news depending on how it's organized. we've seen these events over the

course of -- a temper tantrum 2014. the -- one of the jump in liquidity. including some formally very lucrative markets. that is difficult to many to get to the bottom of why this happening. but if you step back and look at what's happened with the world's largest financial institutions, the.net has not barked at any of these institutions is within a day or a few days they come back into the market dampened ultimately and liquidity or spiked in volatility.

some of these reforms are having their intended impact. that's one of the issues we want to talk about next week which is more -- if i more say it's a more bloomberg type issue. your core client base really cares about these markets being affected. the question we're putting on the table which of the reforms of work? what contradictory to the whole there is if i may a broader question in the u.k. and beyond how well our markets are's serving the real economy? a lot of what you reference actually ultimately serve the real economy better. then there's a third set of questions.

i would use the term social license. it's one thing for me to sit here and say look we got all the technicalities worked out. we can reliably have these institutions and markets. it's another question to say whether or not people want the financial sector. and also very important connected to that is those marketing fairly organized and accountable. >> how much progress you think you've made on that? >> huge amount of anger with the bank. is there any hope for our list of the british public? >> i think it's understandable the skepticism. how much progress has been a? a lot from making the bank stronger. a lot of progress on paper has been made towards results. not has been limited. the key issue -- i think what angers people is the individual responsibility has not been there. we've seen big things against institutions but relatively

little -- some bankers have gone to jail. >> is broader than that. it's the overall culture and the codes of behavior of a broader set of people in the industry. we made sweeping changes. we are in the process of conduct any industries. you see a very much as a product regulator. we connecting those codes and behaviors to individual responsibility and accountability so that if their institution -- the people see the managers and supervisors you don't behave it's their boss and their bosses boss. that's going to make a bigger difference in my view -- it's

much more in the spirit of the way london operates. we make a bigger difference than having a bunch of hard and fast regulations and enforcement around those regulations. >> you put forward you try to communicate with people of outs possible industry rises. all these things and yet it's still difficult learning with the idea of industry. do you think there's an alternative question mark d.o.b. regrets going forward? think it was for guidance initially and it was very much about the early stages -- one is the minimum conditions required before we even begin to think about raising the interest rate? >> given the strength of the initial recoveries 2013 to 2014 the purchasing managers in the

city. historically the bank raise the rate three times during that. it would not been right thing. but it's hardly binding the hands to say let's see what the attraction is? that was a sensible thing to do and i think it actually did get people talking. subsequent to that we have -- half the interest rate. -- we repeated so many times at boring. it's just part of the furniture now. it's a good thing though because that was a call we made in december of 2013. two years ago in a call. not excepted. of course it has been consistent. the challenge we been facing it what's the right timing? this economy has been making some progress in judgment of the committee and myself. at some point that would be there. i would rather have the majority of the british people thinking

that rates are likely to go up in the next year because that is reasonably prudent behavior given economy. do i also want them to think that when rates go up it's not going to be the old rate cycle yes i would like to think that is well because they can plan me. at some point riggelman. it's not today so it won't top your news. >>, finish with two questions somewhat linked. do you have any ambition to see that through? to stay beyond five years? also do have any reaction to events in canada? >> the two unrelated questions. on the second congratulates new prime minister and his cabinet. and i look forward to working with the finance minister. and then the fsb world we have a tangential rule in a coming cup 21 discussions in paris. if i may bring back to bloomberg it will potentially set up a very market-based role on climate change.

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