When dealing with the deep-rooted economic issues, like diversifying our energy centric State-sponsored-everything monolith of an economy, we must take a radical approach and forget the norms of the past.
When Britain faced 25 per cent inflation, labour unrest and an IMF programme, all the economic consensus were swept away in a Thatcherite tide of liberalism by the end of the 70s. When the Great Recession hit in 2008, the entire Western world was blindsided and has been struggling to make the radical changes needed.
I believe, however, we can learn from others in the way we approach our own issues. What we must appreciate is the power, importance and use of the Central Bank in actively driving the economy towards growth.
Firstly, the Government’s fiscal policy can only be effective when complemented with shrewd monetary policy. The Central Bank can, through the control of interest rates, influence every one of our lives almost instantly. Carefully manipulated, interest rates will increase or decrease the rate at which banks borrow and lend and therefore the rate at which you spend. Inflation can be controlled and the economy can be stimulated through monetary policy.
More radical measures like quantitative easing and helicopter drops, considered desperate measures, may never need come to these shores.
Secondly, as always, confidence is everything and the Central Bank is key to inspiring market confidence. They ought to be seen as experts on matters of the economy, above politics and pursuing only the nation’s interest.
With consumer confidence down to -30.8 and business confidence at a mere +2, the Central Bank has work to do. Imagine, when the European Central Bank Governor is to make a statement, as he comes to the podium share prices rise before he’s uttered a word. Dr Hilaire has a lot of work to do if he is to achieve that. Take for example the Economic Bulletin published a few days ago. The single most important assessment of our economy and where is the Governor? He should be actively preaching the forecasts he published to pacify a country on edge.
The outlook is not actually that bad: inflation is “contained” at 3.4 per cent, (though is may rise to a 10 year average of 6 per cent), the repo rate has been kept at 4.75 per cent to prevent an a knock-on effect to consumers’ borrowing in these economic times, unemployment is not expected to exceed 5 per cent and gas production should improve in the short to medium term.
This conjuring of confidence, known as forward guidance, ensures the Bank is front and centre, giving credible statistics, analysis and forecasts with authority in the hope of promoting confidence which will translate to and increase in economic activity and eventually output.
T&T needs to know that it can rely on someone other than partisan politicians to seek our best economic interest. Now is the right time for Dr Hilaire to step up and show that he can steady the boat.
Nathan Boynes