REPEAT: MNI: BOE Not Switching To In-House Rate Hike Forecasts

Repeats Story Initially Transmitted at 07:30 GMT Apr 12/03:30 EST Apr 12

--MPC Not Set To Follow Fed, Norges Bank In Rate Path Transparency

By David Robinson

     LONDON (MNI) - The Bank of England'S Monetary Policy Committee has

consistently refused to publish individual member interest rate forecasts and,

despite media speculation, it is not about to undergo a Damascene conversion and

to start publishing them alongside its quarterly Inflation Report projections,

MNI understands.

     The BOE MPC is out of step with some other central banks including the US

Federal Reserve, the Norges Bank and the Riksbank which, in varying forms, all

publish their own assessments of the likely future path of policy rates. A

recent report in the Financial Times fuelled speculation that the MPC could

change tack and join them, but such a change is not on the cards.

     There is an unending debate among central bankers over whether publishing

in house forecasts adds to, or subtracts from, understanding policy setting. One

argument against publishing forecasts is that observers see them as carrying

great weight while in reality they are conditional and probabilistic.

     --OLSEN NOTES DOWNSIDES

     Oystein Olsen, Governor of Norges Bank, told MNI at a Finance Norway event

in London, that "There are downsides ... to being as explicit as we are. A given

path could be misunderstood."

     When policymakers publish policy rate forecasts they are just setting out

their views of the most likely path assuming that their macro-economic forecasts

hold true.

     "We live in a stochastic world and this (rate forecast) is only one of the

most likely developments within a whole range of potential future paths," Olsen

said.

     MPC member Ian McCafferty, in a Reuters interview published Tuesday,

highlighted the risk of in-house rate forecasts being taken at face value.

     "My worry as a forecaster always has been that when we make a forecast it

is taken as absolute certainty, gospel truth," McCafferty said.

     The MPC's approach, however, of basing its central growth and inflation

projections on market rate curves and issuing verbal guidance also runs the risk

of being misunderstood. 

     --MPC'S TRACK RECORD

     Governor Mark Carney was compared by a lawmaker to "an unreliable

boyfriend" because he steered markets to factor-in tightening that never

materialized. Most notably, back in the summer of 2015 Carney said that the

decision on raising Bank Rate would come into "sharp relief" at the turn of the

year. 

     As it turned out, the MPC only finally delivered its first 25 basis point

hike in November 2017.

     Carney and his colleagues would have been open to precisely the same

criticism of misleading markets if instead of proffering verbal guidance back in

2015 they had published collective, or individual, rate forecasts showing

tightening in early 2016 which never crystallized.

     The MPC's preferred option is for market participants to understand its

reaction function and to respond to the economic data flow with stark verbal

guidance a second best option. In order to get markets to price-in last

November's hike, however, MPC members ended up stating in the September policy

summary that a hike was likely "in coming months."

     While the merits and de-merits of central bank rate forecasts will continue

to be debated, for now the MPC seems certain to stick with its approach of only

publishing best collective judgements of the growth and inflation outlooks based

on market and flat rate curves. 

     The next set of quarterly forecasts, scheduled for May, will doubtless

again show projections based on collective MPC judgements without any Bank Rate

forecasts, collective or individual.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com