McMahon backs more autonomy for Bank

SIR KIT McMAHON, former chairman of Midland Bank and once deputy governor of the Bank of England, yesterday put his weight behind an 'autonomous' central bank but fell short of calling for its independence.

Sir Kit told a Parliamentary committee that British monetary policy would benefit if the Bank had more clearly defined responsibilities for monetary policy and specific targets for inflation by which it would be judged.

'I would like a new Bank of England Act that would define the Bank, with appropriate safeguards to distance monetary policy from the political hurly-burly,' he said.

Ultimately the Government would be able to override the central bank, but it would be publicly more embarrassing for the Treasury than now because the Bank's advice to government has for years been secret.

Sir Kit criticised the relationship between the Treasury and the Bank of England as unhealthy because the bank had little power and was never given credit publicly for its advice. He favoured New Zealand's central banking example, which involves a specific contract for inflation and monetary targets.

Sir Kit defended the Bank's role as supervisor of banks despite the mistakes made over Bank of Credit and Commerce International.

Luxembourg's Court of Appeal adjourned until 9 June hearings on an appeal against a compensation plan for depositors in the failed BCCI yesterday.

The appeal may mean long delays to first payments for creditors.