Bank will meet less often and speak more clearly
So, the Bank of England is to review its news flow and calendar of meetings to make sure the markets are not left in limbo during the days and weeks that it currently takes to tell us what is going on.
Instead of the current disjointed arrangement whereby interest rate discussions take place over two days and the minutes are published two weeks later, the news will be packaged up together. They do it like that in the US.
There will also be fewer meetings of the monetary policy committee (MPC), the body created by Gordon Brown in the early days of Tony Blair’s administration as part of making interest rate policy independent of government. It was one of Brown’s better ideas.
But since interest rates have remained unchanged since March 2009 it has left many wondering what actually goes on beyond a few nods and winks not to rock the economic boat. There must be a better reason for the nine members to turn up religiously each month than to share out the tea and biscuits.
However, it has now been decided to reduce the monthly meetings to eight per year, which means a third fewer and suggests that perhaps there hasn’t been much to talk about, after all. Maybe they have just got a little bored with filling in their time before deciding to do nothing. Unless it’s another austerity move – shaving a third off the tea and biscuits bill will please the Chancellor.
Seriously, the dovetailing of news announcements proposed by Mark Carney, the governor (pictured), will come into effect in August while the changes to the calendar will require parliamentary approval that George Osborne has promised after the General Election (somewhat confidently).
“By removing the present drip-feed of news … in favour of a single monetary policy announcement, we believe these arrangements will enhance the effectiveness of our monetary policy communications, making the policy signals we send as clear as possible,” Carney told reporters today.
The Bank’s quarterly Inflation Report – a summary of economic planning and forecasts – will be published the policy decisions.
Carney’s view is that by streamlining its process it will reduce the potential pitfalls of sending out mixed signals. Minutes of the Bank’s November meeting gave a different interpretation over thinking on interest rates than seemed to be suggested in the Inflation Report. Such confusion has led to unnecessary market volatility.
The Bank’s move to eight MPC meetings per year is in line with the Federal Reserve’s schedule. The European Central Bank will move to a meeting every six weeks from next year.
The changes are also in keeping with the quiet revolution taking place under Carney who adopted Forward Guidance as part of policy making soon after his arrival in the summer of last year.
However, he has been guilty himself of giving mixed messages on when an interest rate rise might be expected. It will be hoped that these latest changes improve consistency.
Carney said that moving to eight meetings per year would give an equal chance of a rate move at each meeting, in contrast to the BoE’s current practice of preferring to change rates when they coincide with its quarterly economic forecast updates.
Meetings of the MPC will move from Wednesday and Thursday to three days – Thursday, Monday and Wednesday, followed by the announcements on Thursday to provide the time for the minutes to be drawn up.
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