ROME (MNI) – Keeping inflation expectations under control serves to
limit the danger of a debt-inflation spiral, Bank of England Governor
Mervyn King said Friday.

Speaking at a conference in the Italian capital, King said: “By
anchoring inflation expectations, monetary policy can minizmize the risk
of the kind of debt-inflation spiral which we have been worrying about
for too long.”

“Price inflation can cause misperceptions about the future state of
the economy, which makes it more difficulty for lenders … to assess
the quality of borrowers,” he said.

“For monetary policy to work,” King said, “a stable financial
system” is needed.

“Monetary policy is naturally well suited to tackle inflation, but
it’s less well suited to dealing with other distortions in the economy,”
he said.

King was speaking at a conference is in the memory of Italian
economist, finance minister and central banker Tommaso Padoa-Schioppa.
He did not comment on the current monetary policy conjuncture.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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