Mark Carney, governor of the Bank of England, is already on the record in questioning... Read More
After overhauling management and operations, and introducing forward guidance on interest rates, the governor has still not tampered with the machinery of monetary policy, including when officials meet and how they present decisions. For a man who has left few stones unturned as he reaches his 500th day at the BOE tomorrow, his work may not yet be done.
Any timetable overhaul that Carney might advocate would likely move to fewer rather than more decisions, just as Mario Draghi at the European Central Bank has done with a Fede
ral Reserve-type six-week schedule as part of a revamp for 2015. With U.K. policy having been in stasis for more than two years, the time could be ripe for changes to allow officials time to acclimatize before they begin to raise interest rates.
“Sometimes meeting every month just feels too often because the economy hasn’t really changed that much,” said Kate Barker, a senior adviser to Credit Suisse Group AG who sat on the Monetary Policy Committee from 2001 to 2010. “I could see merit” and “I don’t think it would at all be difficult to move it to six weeks,” she said.
The nine-member MPC usually announces its decision on the Thursday of the first full week of the month and releases minutes of the meeting 13 days later. Officials also produce forecasts every quarter, with Carney presenting the latest ones at a press conference tomorrow.
Carney’s Revamp
Carney’s change offensive has already been felt across the 320-year-old BOE. From creating a new cadre of management to scrapping cricket on the advice of staff at the institution’s sports day, from introducing policy guidance to overhauling market liquidity operations, little inside the building has escaped his scrutiny.The governor, 49, is on the record in questioning the number of MPC gatherings, mandated in the legislation granting the bank independence over monetary policy. The current frequency “verges on too many,” he told U.K. lawmakers at his appointment hearing in February 2013.
BOE Chief Economist Andrew Haldane joined the debate in April when he said it was maybe a “good time” to examine the calendar. Haldane, who began voting on the MPC in June, told lawmakers on parliament’s Treasury Committee that he would approach the issue “in an open-minded fashion.”
No prospective changes to the policy setup have been publicly discussed recently, and a BOE spokesman declined to comment on the matter.
MPC Review
Altering the MPC’s monthly timetable was last probed in depth publicly in 2007. While the Treasury Committee recommended a “minimum of eight annual meetings,” the then Chancellor of the Exchequer Gordon Brown voiced resistance. Within months, the global financial turmoil struck and the U.K. was in recession.“In the financial crisis, I was really glad we met every month,” said Barker, the longest serving external member of the MPC. “I think if we had been on an eight-meeting cycle we might have ended up having emergency meetings and that would have been uncomfortable.”
Among other Group of Seven nations, the Fed and the Bank of Canada, which Carney once ran, schedule rate-setting meetings eight times a year, meaning every six weeks. The Bank of Japan has 14 gatherings on its timetable this year, while the Reserve Bank of Australia has 11.
Osborne Leeway
Any alteration to the BOE calendar would have to take into account the quarterly Inflation Report of economic forecasts, which started more than two decades ago. Keeping it would still allow an eight-meeting schedule, with one in between each Inflation Report gathering.A move on the timetable might depend on a re-interpretation of the law, or a more difficult-to-achieve change in legislation. The Bank of England Act 1998 stipulates that the MPC must “meet at least once a month” without specifying the frequency of decisions. Such an alteration could therefore hinge on the relationship between Chancellor of the Exchequer George Osborne and Carney and how much leeway Osborne is willing to give the governor.
“It’s not going to happen, but it should,” said Charles Goodhart, who sat on the MPC when it was first formed. “It won’t change because the disadvantage of meeting monthly is not as great a concern as what might happen if you reopen the Bank of England Act.”
Communication Plans
Carney may also want to look at how the MPC communicates decisions, just as the ECB has also had a rethink about how it portrays its discussions. The Frankfurt-based central bank will begin publishing minutes of meetings in 2015, though it releases a policy statement on the same day as its decision. Counterparts including the Fed and the Bank of Canada do too.While the BOE publishes minutes within two weeks of a decision, that’s usually the first insight into its monthly assessment.
The logic behind this approach is found in a 1998 letter from then Governor Eddie George to lawmakers, which said the timing would allow for a “full and balanced account.” George said less than two weeks could undermine the quality of minutes, which may be one argument against speeding up publication. The maximum lag by law is six weeks.
Former MPC member David Blanchflower, who favors keeping the routine of the monthly meeting timetable, said a solution on communication could be a statement alongside the MPC decision showing how policy makers voted.
Confusion
That could reduce volatility caused by uncertainty about the individual stance of MPC members between the policy announcement and minutes. For example, in January 2007, market yields rose after an unexpected decision by the MPC to raise the key rate. That partially reversed two weeks later when the minutes disclosed a 5-4 split on the panel.“The confusion worsened things,” Blanchflower, who voted against the rate increase at the time and is a professor at Dartmouth College in Hanover, New Hampshire. “I never understood at the time the logic of not saying who voted which way. Rather than speculating, you should have just been told.”
Richard Barwell, an economist at Royal Bank of Scotland Group Plc, said the current two-week lag is “lose, lose” because officials spur speculation in the markets and drown out the news in the minutes because investors focus on the votes.
“It’s an open goal on the communication front,” said Barwell, who previously worked at the BOE. “This issue is going to become increasingly important when more MPC members come round to the idea that the U.K. economy no longer needs emergency stimulus.”
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