|
The
BoE wrong-footed many investors last year over its next moves on
interest rates, prompting officials to take stock of their
communication strategy.
Governor Andrew Bailey said in November he could imagine going
back to the days of offering no forward guidance.
Broadbent, in a speech marking the 25th anniversary of the
Monetary Policy Committee, said there was value in guidance
which clearly explained how the BoE planned to react now to
incoming news on the economy.
But he was sceptical about other forms of guidance.
Attempts by a central bank to steer expectations about how it
might react in future - such as by publishing a plan for future
interest rates - risked being viewed as promise, with a cost to
credibility when things pan out differently.
He said the BoE's first attempt at forward guidance in 2013
under former governor Mark Carney - which linked future interest
rate moves to the unemployment rate - was too convoluted.
"Expectations of future interest rates affect current demand and
policymakers clearly have an interest in their behaving
appropriately as economic news comes in," Broadbent said in his
speech at the National Institute of Economic and Social
Research, a think tank.
There were many ways of doing this, whether in the form of
speeches, simulations or even published interest rate paths.
"But whatever the medium, monetary authorities need always to
think that the message – not least the point that future policy
will depend on how the outlook for inflation evolves – is well
understood," Broadbent said.
Answering questions after his speech, he said research showed
people could understand even conditional communications over
policy if they were rooted in the real world.
"But the more abstract they are, they fail to come across and I
think (the forward guidance in 2013) was one which was didn't
pass muster," Broadbent said.
"And so I think that is that is a lesson that they really have
to be clear."
Broadbent also spoke briefly about the surge in inflation that
might reach almost 9% - more than four times the BoE's 2% target
- according to the government's fiscal forecasters, due mostly
to the leap in global energy prices.
"As a big net importer of manufactures and commodities it's
doubtful that the UK has ever experienced an external hit to
real national income on this scale," he said.
"From the narrow perspective of monetary policy it will result
in the near term in the difficult combination of even higher
inflation but weaker domestic demand and output growth."
(Editing by William Schomberg and Alison Williams)
[© 2022 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|
|
