Bailey Signals BOE Has Abandoned Hard Guidance for Rates Policy
Bank of England Governor Andrew Bailey signaled that policy makers have effectively abandoned forward guidance as a way of guiding investors about the likely path of interest rates.
Answering questions at Cambridge University, Bailey said there were three forms of forward guidance and the one that is currently in use is “not so much forward guidance as a reminder of where we are.”
Bailey said the system put in place in 2013 by his predecessor, Mark Carney, “is pretty hazardous (and) more hazardous in a more uncertain world.”
In 2013, Carney told markets that the BOE would consider raising interest rates when unemployment fell to 7%.
In place of that “hard” form of guidance, the BOE has recently been using softer “evidence” based guidance to provide an anchor for policy “in this world of greater uncertainty,” Bailey said.
“That’s a clear statement of intent to help people understand what we’re doing,” he added.
The current form of guidance is to “remind people of the policy framework.” He said markets had grown skeptical that the BOE was targeting inflation.
“A lot of people think we are in the growth business come what may,” Bailey said. “We are in the price stability business. That’s not so much forward guidance as a reminder of where we are.”
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