Carney Pushes Back as BOE Debates Publishing Rate-Path ForecastBy
Majority of policy makers not in favor of publishing rate path
Central bank’s communication tools have been questioned
Mark Carney pushed back against the Bank of England publishing a more explicit forecast for interest rates as he defended his current communication tools once again.
The BOE governor was joined in his view by Deputy Governor Dave Ramsden and policy maker Michael Saunders, who both said they were skeptical of the benefits of adopting an approach like the Federal Reserve. Carney said that while the Monetary Policy Committee has actively discussed the issue, he’s not convinced it would be an improvement.
“The consensus as a committee, or the majority of the committee, was not in favor,” Carney told lawmakers in London on Tuesday. “There are risks of procrastination once you put a path out there.”
The topic of communications has dominated recent discussion about the BOE after investors were forced to sharply reverse course on expectations for an interest-rate hike this month. The bank left its key rate at 0.5 percent on May 10, but Carney has robustly defended his guidance, saying it’s conditional and well understood by households and businesses.
Among those who favor being more explicit on the path of interest rates is MPC member Gertjan Vlieghe, who also addressed lawmakers on Tuesday. He added that he still expects one or two rate hikes over the next three years. After the BOE left policy unchanged this month, markets put a 47 percent chance of a hike in August.
Silvana Tenreyro said last year that the BOE’s communications strategy has its merits, but it could learn from others including the Federal Reserve. The Fed publishes a dot plot, with each point representing a rate setter’s view on where rates should be at the end of the calendar years shown, as well as in the long run. The Norges Bank has also published its estimated path for policy since 2005.
“The advantages outweigh the risks, in my judgment. I think such a change would represent a further, modest, evolutionary improvement in communications,” Vlieghe said.
Ramsden responded by saying the current communication “works well” and he’s “more skeptical” about rate forecasts.
That’s also the position for Carney, who’s been dogged by criticism of his forward guidance policy since he took up the post as BOE governor in 2013. It’s even seen him dubbed an “unreliable boyfriend” by one politician, a name that was revived this month.
It creates the added risk of “pre-commitment,” Carney said. “You’ve got a path, you feel more obliged, for reasons of credibility, to follow through.”
He was asked by Treasury Committee Chair Nicky Morgan about whether a line in the BOE’s February statement -- which said officials expected policy to be tightened earlier than previously anticipated if the economy evolved as they expected -- was confusing in hindsight.
“What happened is the economy did not, in the first quarter, evolve broadly in line with our forecast. Inflation came in lower, economic momentum, a number of signs were lower, then ultimately the hard data came in lower as well. And we as a committee stepped back, looked at that data and took our own assessments.”
Official data showed that economic growth nearly ground to a halt in the first three months of the year, and the inflation rate dropped more sharply than anticipated.
While two of the nine Monetary Policy Committee voted to increase the benchmark rate to 0.75 percent this month, Carney said he and the majority “thought it made sense to take a bit of time” to assess the economy after the first-quarter weakness.
— With assistance by Catherine Bosley, and Stuart Biggs