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WASHINGTON, Oct 4 (Reuters) – International Monetary Fund chief Kristalina Georgieva said on Tuesday the Bank of England had acted “very appropriately” and quickly in responding to market turmoil after Britain’s finance minister roiled markets with a plan to abolish the top rate of income tax.
In an interview with Al Arabiya television, Georgieva said Britain was a mature country with strong institutions that were taking action to ensure consistency between fiscal and monetary policy.
“The Bank of England acted very appropriately, quickly. Now there are changes in how the package is going to be pursued. And very important(ly), the office for Budget Responsibility is engaged to provide valuable independent views,” she said.
British finance minister Kwasi Kwarteng sparked a sharp drop in the British pound last week with his plan to cut taxes without detailing the impact on public finances. He reversed course on Monday, dropping plans to get rid of the 45% top rate of income tax.
The market’s negative reaction prompted the Bank of England (BoE) to restart its bond-buying program, pushing the pound up from its record lows.
The IMF last week criticized the financial plans of Britain’s new Conservative government,
warning that “large and untargeted fiscal packages”
would likely increase inequality in Britain and could undermine monetary policy.
On Tuesday, Georgieva told Al Arabiya that stubborn inflation rates had forced central banks around the world into decisive action to raise interest rates, but it was critical that such tightening be matched with responsible fiscal policy.
“We cannot have fiscal policy working against monetary policy by providing untargeted fiscal support,” she said. “I use a very simple image: Imagine that monetary policy is putting a foot on the brake pedal, fiscal policy at the same time is pressing the accelerator. That is a recipe for a very bad ride.” (Reporting by Andrea Shalal; Editing by Chizu Nomiyama and Mark Heinrich)
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