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UPDATE 1-BoE's Bailey says guidance is hazardous for central banks

Thu, 25th Nov 2021 19:17

(Recasts, adds detail and background)

LONDON, Nov 25 (Reuters) - Bank of England Governor Andrew
Bailey said on Thursday that central banks took risks when they
sought to provide guidance on what is likely to happen with
interest rates during times of economic uncertainty.

Bailey, who has been accused by some investors of sending a
wrong signal about the likelihood of a BoE rate hike earlier
this month, told an event organised by the Cambridge Union that
guidance was still a relatively new tool for central banks.

"Obviously, in a world which is much more uncertain as to
whether things will happen, then it's much more hazardous to
give that guidance," he said.

The BoE shocked financial markets on Nov. 4 when it kept
Bank Rate on hold at its coronavirus pandemic low of 0.1%.
Investors had read remarks made by Bailey in October as a signal
that rates would rise at the BoE's November meeting.

Bailey has said he was never explicit about when rates might
rise and his comments on the need for action were conditional on
risks to expectations about inflation which the central bank
believes will approach 5% in the second quarter of 2022.

Speaking at Thursday's event, Bailey said it had been
relevant to state the BoE would not allow those inflation
expectations to get out of control. "That's not so much forward
guidance as a reminder of where we are," he said.

Bailey also said the difference between providing commentary
on the state of the economy and what the central bank is likely
to do with borrowing costs was hard to define.

"The boundary between a commentary and guidance is quite
murky, actually, when you think about the words we use," he
said.

The BoE's December monetary policy decision is due to be
announced on Dec. 16.
(Reporting by William Schomberg; Editing by William Maclean and
Jonathan Oatis)

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