Major central banks are going to find difficult to combat an economic downturn as they are running out of monetary policy tools, Bank of England Governor Mark Carney said in an interview with the Financial Times.
"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," the outgoing governor warmed.
"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," he added.
Carney cautioned that the global economy is heading towards a "liquidity trap" and policy loosening would fail to encourage additional spending.
The Bank of England had lifted its key interest rate by a quarter-point to 0.75 percent in 2019. The US Federal Reserve had lowered its rates three times last year.
Carney suggested that the government needs to consider fiscal measures such as tax cuts or public spending to tackle a downturn. He remained optimistic about the economy after the Brexit.
The banker said the government should not accept EU rules for the financial services sector after Brexit.
"It is not desirable at all to align our approaches, to tie our hands and to outsource regulation and effectively supervision of the world's leading complex financial system to another jurisdiction," Carney told FT.
Andrew Bailey will take charge as Bank of England Governor after Carney step down on March 15.