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BOE Hasn’t Decided on Forward Guidance After Court Reviews

The Bank of England said it hasn’t decided whether to provide forward guidance for monetary policy as it published a response to reviews of its operations commissioned by its governing body.

David Stockton, a former Federal Reserve official, recommended that officials increase communication on the policy outlook. His report on the BOE’s forecasting was published in November following a lawmaker push for an inquiry as the central bank prepares to take on powers to regulate banks.

“No firm decision has been reached at this stage on the provision of information concerning the possible future path of monetary policy,” the BOE said today. “This recommendation will be reviewed as part of the changes intended to support the forecast process.”

Governor-designate Mark Carney has promoted the idea of guidance on longer-term policy, and has said officials aren’t out of ammunition to drive an economic recovery. Now Governor of the Bank of Canada, he’ll take over from Mervyn King in July.

“There is considerable enthusiasm to take forward many of the options and ideas contained in the review,” the BOE said. The bank is “committed to implementing material changes” in its forecast process and how the forecasts are communicated.

The bank said it will provide more detail on the judgments underlying its forecasts along with alternative scenarios and will create an “enhanced role” for bank staff to challenge the Monetary Policy Committee.

Recommendation Rejected

However, the bank rejected a recommendation to quiz individual MPC members on their outlook for growth and inflation, saying their views are already “fully taken into account.” It also said there are “considerable benefits” to focusing on the collective judgment rather than “highlighting relatively small differences between individual members.”

In a separate review, Bill Winters had said the BOE should consider returning to reserves averaging. The central bank said today this was planned when market prices suggest a rise in its benchmark interest rate is expected in the “near term.” The BOE suspended its averaging framework for commercial bank reserves during the financial crisis.

In response to another Winters recommendation, the BOE said it will assess options before the end of this month for regularizing tools such as the temporary Extended Collateral Term Repo Facility that provides funding against the widest range of collateral. BOE officials will also look at ways of reducing the stigma associated with accessing services such as the Discount Window Facility and making some liquidity tools available to non-banks, such as central counterparties.

Former BOE Executive Director Ian Plenderleith, in a report on so-called Emergency Liquidity Assistance, said it should improve processes and ensure its “heightened level of readiness” to crises doesn’t erode over time.

He recommended the BOE continue to explore the option of funding foreign-currency ELA through swaps undertaken in the market, or through its own and the government’s foreign-currency reserves, should swap lines with other central banks no be available. In response, the BOE said “contingency plans are being developed and will be revisited annually.”

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