ecb ispower of the emerging. it presented its final inflation report, i sat down with the governor for an exclusive interview. thank you for sitting down,

you said in july that the rate --rease what i said in july and repeated a few times is that i felt that given our forecast, the decision about whether to begin the process of raising interest rates would come into sharper relief at the turn of the year. the year has not yet turned. it is coming closer. -- the progress has been mixed. growth has ticked down to growing on trend. some of the imported costs have been a little softer. is a bit mixed and b have a situation where domestic demand in this economy is resilient. it is progressing. my reading of today's

, what is spooking you is the emerging markets, and haveaid the prospect weakened. how does this apply to china? exposed.k. is much more to europe and the united states, and slightly derivative exposure to emerging markets. such an extent, it has an impact on our forecast. if you look at u.k. weighted growth, our forecast has gone down by three quarters of a percentage growth. lowering --cutest

that is the cumulative lowering of demand. the rate of growth in china is slowing to about 6%. certainly, china is at the center of it. this is not just a china story. estimates, say best you also said the prospect of banks inside china, financial stability board, how much do you worry about tom much bad stuff there is -- how much you worry about that stuff on the balance sheet? one can expect that some point there will be an uptick. we haven't yet seen it. credit,ease in private aggregate credit has doubled two times in the last five years. as the economy slows and as nominal growth slows, -- chinese

nominal growth was about 20% in the immediate aftermath of the crisis. it has slow to just above 6% at present. that therexpect would be an increase in nonperforming loans and banks would have to adjust to that. >> are they measuring that correctly? >> they have to actually start not performing before you can measure it. i would underscore that chinese angst have a very strong capital -- chinese banks have a very strong capital system. it is a process of adjustment through the financial sector is one of the reasons that we feel like growth is going to slow. >> are there any other emerging countries that you are worried about? issuese are a series of -- latin america notably.

there are a few dynamics. the commodity cycle has come to an end. that impacts brazil, chile -- the shift has been marked over the last couple of years. it is potentially reinforced by advanced economy monetary policy. that is having an impact on growth. and then, the pace of structural reform and productivity growth has slowed in the last few years. the country like brazil, the level of structural reform has not happened. whole, and this is a familiar tale, when capital is flowing in, credit conditions are easy, one can delay those

types of things.our assessment is that these are not a series of idiosyncratic issues, they are broader issues. >> can i ask you one laughing about china? you always look for to rebalance. it moved towards consumers. -- it doesn'td seem to be a good saying. think it is a good think directionally. we have seen it pick up and services. aat is a reason why there is bit of a breakdown between industrial production and chinese growth. that is a positive things. we are seeing financial -- that is a positive thing. we are seeing financial growth.

it will bring the rebalancing. it will bring a more sustainable rate of growth in china. it is the second biggest economy in the world. these processes are never perceived smoothly. -- we'll have to deal with it. >> janet yellen says there is a possibility that the fed will raise rates. guess up when they will raise rates? >> the fed will do what is necessary to achieve -- >> that is very brave. you may have some basic scenario? >> in the end, the way we look at it, they will pursue a path of interest rate adjustments that are consistent with keeping

with price stability. the u.s. economy is performing quite well. this is not the economy of precrisis years. that economy was of the table. it is performing well. we see it growing in the high twos. that is material for demand for the u.k. and one of the reasons why we see our economy continue to progress. i in quite confident that they will make the right decision at the right time. i am quite confident that they will make the right decision at the right time. familiar tofeel you? it is familiar to all central -- we are all as reliable as we can be.

when i say i am confident that they will take the decisions that are necessary is because i have a reasonable understanding of how they will adjust monetary policy. timing, doesf your that play a role? [laughter] we don't need to worry about what is happening in america. >> what matters most to our timing is the reason why u.s. monetary policy adjusts. we would expect it to a just because of that economy is continuing to grow above trend. there is inflation in that economy. i freak only remind people of this. -- i frequently remind people of this. since we became an inflation -- thisr, there are recovery in the u.k. started

after the recovery in the u.s.. we are catching up. we may have a little more flexibility in our labor market because more people have stayed in the job market in the u.k.. we will take our decisions and we are certainly informed about what is happening. we will take our decisions based on achieving our targets. inflation around the west? inflation is very low. it says something about the .odern economy >> what has happened is that we have had a beer he severe shark, to severe shocks. want to global demand. the other -- one is a global

demand. the equilibrium interest rate that are consistent with achieving inflation targets and have an economy grow have progressively fallen over the inrs and aggressively fell the aftermath of the crisis. the ability of central banks to stimulate economies has been challenged. arguably, they have been catching up to provide that degree of stimulus. i would argue that both the u.s. and the u.k. -- what has happened in the last several years, because of the repair of the financial system, because of pay downs by the households of debts, because of some of the repair on the fiscal side in those economies, those equilibrium interest rates have been increasing and we are getting more traction with monetary policy and that is the good news. -- medium relatively open economy, you face a bit

more of a head wind. we import more global disinflation. we are waiting -- we are w eighing. >> the score inflation matter? -- does core inflation matter? >> it is important we look at it because of this important -- ted disinflation. it takes a well to filter through to the end prices. we have to be conscious of the extent to which it just.

there is some persistent -- persistence in that. bit fromdjusted a which we would return inflation to target because we are recognizing that there is some persistence. we might not be able to get inflation back to target as quickly as we would have thought if it was just a one-time drop, for example, the oil prices. factors, more persistence. we can take a little longer to get back to target. that means that monetary policy would be a little tighter than it would be in the first scenario. because that is where the pressure comes. what we want to avoid is to have cost pressures build up domestically to the extent that one sees foreign factors ultimately passed through the economy, we are overshooting that inflation target due to inflation -- domestic strength.

policy, you are doing a meaningful job in terms of restricting beings. how do you see that balancing with monetary policy? we take fiscal policy, and i can grand eyes it, the fact is, fiscal policy will slowly. it is in place and will have certain impact on the economy and we try to adjusted given that. only in extreme circumstances that central bank should ever weigh in on fiscal policy and that is only when it toeatens the central bank

achieve its objectives. things thather --ries outside investors there is a limit about what you can say. what does the thing that worries and would hurt the financial side of britain? but would you try t what would you try to stop? we have to to contingency planning for extreme risks. sayingon public record and are doing contingency planning. we never disclose our contingency plans in advance. we always disclose the plants once the issue has passed. john: which bit of it would were you from a central bank perspective?

that is a realistic perspective. which should they both try to cover? >> the issues around our relationship with the european in an we detailed associated report, i think there is a general point from a macroeconomic perspective, which is, the u.k. with a very large account deficit that is natural given the economy is growing more rapidly. solid,inanced with very largely long-term investment lows. it is important that this economy continues to be an attractive destination for foreign capital that is a product of many thinks. our contribution to that is monetary and financial stability and we will continue to deliver

that. viewers andur listeners can continue to invest. said in july that the bank would not be able to resolve a failure. is that good news? >> that may not be an exact quote. we are diligently working on ensuring we have all the tools both in the u.k. and globally to resolve major banks. week andnnounce next agreement on total loss absorbing capacity. you have seen the u.s. announcement, there is a global announcement. for is the defining moment

individual institutions. having the capital structure, you then have to go through several years where tanks reorganize their capital structure and also their business model to be consistent with that. it is when you get to the end of that process, you are in a position where we can resolve one of these institutions. we recognize that. with respect to your specific russian fan, we are very -- with respect to your specific question, we have a financial being 10n the road to to 15 times greater. we have to organize it in a way that it is resilience of individual institutions, whether they are banks, asset managers, banks that are

bigger than our own gdp. we are putting in place all the tools necessary for that to be the case. week, we are having a .ublic event i will let you ask, but it is relevant to this because one aspect of this so-called reform is a recognition that the progress that has been made for institutions and markets comes of this economy, this country come or this society can confidently sustain financial sector if he chooses. on that questionable public , you talk about the open forum, making capitalism work for people.

liquid at a seems to be a big part of it. people are angry about banks. be providing less liquidity. is that good news or bad news? is good news depending on how it is organized. the -- you have this sort of jump in the quiddity and a few difficulties in the markets. -- you have this sort of jump in difficulties a few in the markets. if you step back and look at what has happened with the world possible are just institutions. at dog that hasn't barked any of these institutions, within a day or a few days, those institutions have come back into the market, they have liquidity as opposed to

amplify. reforms are having their intended impact. that is one of the issues we want to talk about next week, type is a more bloomberg of issue. your core client base cares about these markets. as they should. the question we are putting on -- which, which have reforms have worked? if i may, there is a broader sense of questions in the u.k. is how well markets serving the real economy? a lot of this diversification you reference, that will serve the real economy better. will he a more diversified

system. -- we'll have a more diversified system. it is one for me to say here and say, we got all the technicalities worked out in these institutions. if another questioned to say whether or not people want a financial sector of this size. whether they view those markets as being fairly organized and accountable. john: how much progress do you think you have made on that? a huge amount of anger at the banks. you are relatively popular. [laughter] there has been an attempt by you to explain. >> it is understandable, the skepticism that people have. how much progress has been made? a lot of progress has been made

making bank stronger. the key issue is a row conduct. ishink what angers people individual responsibility has not been there. we had -- we have seen big fines against institutions. john: do you with some bankers had gone to jail? >> it is broader than that. it is the overall culture and the codes and the behaviors of a broader set of people in the industry. we have made sweeping changes. i would underscore, in conjunction with banks and participants who are in the process of rewriting the code of these industries, and we are connecting as regulators. we are connecting the codes and behaviors to individual responsibility and

accountability, so if the people, senior managers behaved, it is not just the responsibility of that trader, boss.here bosses' boss. it will make a bigger difference than having a bunch of hard and fast regulations. trust, the unreliable boyfriend. you put -- you try to communicate possible interest rate rises. we are still flirting with the idea of interest rates. do you think there was no alternative looking back? it was about -- early stages was a recovery and what are the minimum conditions required

before we raise interest rates? given the strength of the initial recovery, the strength of the purchasing managers and the growth, they would have raised rates three times. it was rebinding the hands of the community to see what the attraction of the -- the traction. todid give people confidence continue to invest. subsequent to that, we had given guidance to the path of interest rates, limited and gradual. we repeated it is so many times. it is so boring. it is a part of the furniture now. that is a good think. that is a call we made. 2013, two years ago,

we made that call, now it's excepted. it has been consistent. recently, the challenge we have been facing is what is the right timing of starting that process of limited, gradual rate increases? this economy has been making some progress in the judgment of the committee, including myself, it has not made enough progress to start that process. at some point, that will be there. would i rather have -- is the majority of the british people thinking rate of likely to go up? yes i do. , businessesnt them to think that would rates go up, cycles? be the old rate them to think that

as well so they can plan accordingly. one day rates will move. that will not top your news. john: can i ask a personal question? do you have any ambitions to see that through and stay beyond the five years? you have a reaction to the events in canada? >> to unrelated questions. [laughter] congratulate them and the new cabinet. i look forward to working with the new finance minister. rolee fsb role, we have a in the upcoming discussions. john: in paris? may, it will potentially set up a very market-based role on climate

change. halfwaypect, i am not into my five years. john: thank you very much. ♪

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