INSUBCONTINENT EXCLUSIVE:
few weeks ago markets and economists were convinced the Bank of England was all set to hike interest rates on May 10, until Governor Mark
Carney gave a surprisingly dovish interview and suddenly all bets were off.
In just a couple of weeks, the pound tumbled 7 cents against the
dollar and, in probably the most dramatic turnaround in Reuters polling history, virtually every economist in a panel of more than 60
changed their forecast.
In theory, forward guidance smoothes the outlook, mitigating risk for businesses and financial institutions, and
helping to spur investment
It also is supposed to make it easier for the general public to plan their personal finances.
The problem is, not following through with it
guidanceStatements from central bankers are always going to be scrutinized by financial professionals, word by word, for any changes in
terms of speeches perhaps governors need to be a bit more careful than other members of the committees about expressing views because
having to put forward guidance into reverse.
Bank of Japan Governor Haruhiko Kuroda jolted markets in March when he told parliament the
central bank could consider and debate exiting its ultra-easy policy if inflation hit its 2 percent target as projected in the fiscal year
March.
Weak economic performance in the first quarter is one of the reasons the BoE changed its tune so abruptly.
NO FREAKOUTSEuropean
Central Bank President Mario Draghi has been more successful of late with forward guidance.
Despite clear signs in business surveys of a
slowdown, Draghi said at his post-decision press conference on April 26 growth was expected to remain solid and broad-based.
Sources have
told Reuters ECB policymakers were keen not to upset investor expectations that its 2.55 trillion-euro stimulus programme would end this
year and its policy rate would rise for the first time since 2011 towards the middle of next year.
And the United States Federal Reserve is
now debating how to describe conditions under which it would try to slow the economy without alarming financial markets.
The Fed began
raising rates in December 2015 and is now approaching a point where its stance can be described as neutral rather than accommodative, the
first time it will face such a transition since its rate-hiking cycle in 2004-2006.
None of the policymakers charged with overseeing the
