Carney Prepping Super Thursday Deluge to End BOE Policy WhiplashJennifer Ryan
Mark Carney is going to turn the Bank of England’s drip-feed of information into a fire hose.
The succession of releases the Monetary Policy Committee normally provides over two weeks, sometimes whipsawing investors, is about to be condensed to just one day. They will now get immediate access to everything from the latest interest-rate decision to forecasts and how the nine-member panel voted.
While the plans will provide an array of information to help give investors greater clarity on the policy outlook, the challenge for Carney will be ensuring the MPC’s central message doesn’t get lost amid the deluge. That tension is likely to be heightened at the quarterly Inflation Report, when the central view of the MPC may be ignored if the minutes released alongside show a split committee.
“Putting all these announcements together gets rid of a lot of uncertainty and speculation, so full marks to Carney on that,” said Alan Clarke, an economist at Scotiabank in London. “You may still have the same risk, that people get the wrong end of the stick until they get a chance to look at the detail. It may be it takes the market a few days to absorb the message after Super Thursday.”
The BOE’s nine-member MPC usually announces decisions on the Thursday of the first full week of the month, and the proposed changes follow a review commissioned by Carney. At a press conference in London yesterday, the governor also announced the MPC will, subject to Parliamentary approval, cut the number of meetings a year to eight from 12.
The BOE currently publishes minutes two weeks after decisions. Every quarter, it updates forecasts in its Inflation Report, which it releases between the decision and the minutes.
That slow reveal of the MPC’s thinking has the potential to whipsaw investors, as happened in August, just weeks after a lawmaker said conflicting signals meant Carney was acting like an “unreliable boyfriend.”
Six days after the BOE kept the key rate at 0.5 percent, at the Aug. 13 Inflation Report press conference, Carney signaled officials wouldn’t rush to raise rates, sending two-year swap rates lower. They rebounded on Aug. 20 after minutes showed a minority voted to tighten policy, the first dissent on rates in more than three years.
“The pattern we’ve seen recently is of a dovish Inflation Report being presented by a few internal members of the committee, and the minutes showing a different view,” said Samuel Tombs, an economist at Capital Economics Ltd. in London. “With everything published all at once you won’t see that pattern again.”
Sea of Noise
Tombs also noted the risks from an information flood, saying there’s “a danger that the markets, the press and economists alike struggle to see the ‘wood for the trees’.”
For Carney, the change will give people a better chance to understand the MPC’s thinking.
“This is not about giving just a sea of information, blanketing you with information, data, noise,” he said yesterday. “It’s about what’s most relevant, what influences decisions, providing the signal as much as possible.”
Explaining the change to the MPC schedule, Carney said the committee “meets too often.” In a report yesterday, the BOE set out a provisional timetable for 12 meetings in 2016 that would allow it to drop four should Parliament approve the reduction.
“It’s possible to trade, but we’re trading off of guesses,” said Philip Rush, an economist at Nomura International Plc in London. “It shouldn’t have been so hard for Carney to have discussions with the government ahead of time to come up with an agreement on what the dates would be.”
An eight-meeting schedule would put the BOE in line with practices at other central banks, including the Fed and, from next year, the European Central Bank.
Clarke, Tombs and Rush said the changes wouldn’t affect their expectations for U.K. interest rates. Economists in a Bloomberg survey forecast a rate increase in the second half of 2015 from 0.5 percent, where it’s been since March 2009.
Stuart Green, an economist at Santander in London, agreed, though he said that fewer meetings may raise the possibility that officials are more willing to move in months where the bank isn’t revising its forecasts.
“In the short run, there might be a greater scope for volatility with three pieces of information being released,” he said. “It’s a big shift in communication policy. Even though we haven’t had any rate change for five years, the changes mean that now every announcement will matter.”
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