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MNI (London)
-BOE MPC To Publish New Analysis On Neutral Interest Rate In Aug IR
-MPC Debated Publishing Its Own Bank Rate Path, Majority Against
By David Robinson
     LONDON (MNI) - The Bank of England Monetary Policy Committee (MPC) is set
to take one step along the road to greater transparency by giving its estimate
of where the neutral interest rate lies, but the majority on the committee still
oppose going the extra mile and publishing their own future policy rate path.
     The MPC publishes neither a collective policy rate forecast nor individual
members' ones and on Tuesday BOE Governor Mark Carney revealed that the majority
on the committee remain opposed to doing so. He revealed, however, that the
August Inflation Report will have an assessment of where the neutral policy
rate, the rate that neither stimulates nor slows growth, may be.
     The MPC has been a bulwark against the modernizing trend for policymakers
to publish their own projections, collectively or individually, of where the
policy rate is likely to head. 
     On Tuesday, external MPC member Gertjan Vlieghe revealed to the Treasury
Select Committee that he had made the case within the Bank for publishing a rate
forecast but he seems to be pushing against a closed door.
     Vlieghe's colleagues adopted the well-worn defences against change that
in-house forecast risked providing spurious precision, that it could be mistaken
for a promise on where rates are heading and that the MPC was succeeding in
getting its message across without it.
     Deputy Governor Dave Ramsden said of Vlieghe's support for publishing a
rate forecast "Personally I have to say I am more sceptical .. I think our
communication is actually working well, I think it is consistently reaching
businesses and households, as surveys show."
     Ramsden and Carney insisted that the public and businesses had grasped the
key message that interest rates were likely to head gradually higher. 
     The latest Markit survey showed that 80% of households expect a rate rise
over the next year and Ramsden argued publishing a rate forecast could cloud
things. He said there was "a real risk .. that things get lost in translation,
that forecasts of interest rates can be seen as promises. We have seen a bit of
that with interpretation of our recent guidance so that would be my worry if we
went down the rate path course."
     Market participants are not, on this view, the target audience for
guidance, although this is a stretch as mortgage and other rates that impact
households and business are priced off market curves.
     What market participants can look forward to is the MPC coming clean on
where the neutral interest rate may lie. Deputy governor Ben Broadbent once
managed to get through an entire speech and Q and A on the neutral rate without
putting a number on it but the Bank looks like it is going to open up a bit.
     "One area where it might be useful to do more is to talk a bit more about
where a neutral level of interest rates is," external MPC member Michael
Saunders said.
     Carney went on to state that the MPC's deliberation on the neutral rate
would be published in the August Inflation Report. 
     So market participants will get more of the kit to help assemble a view of
where the MPC is headed, just not the MPC's own views of where Bank Rate is most
likely to head.
--MNI London Bureau; tel: +44 203-586-2223; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |