Communicating Monetary Policy in Practice

In this speech, Marian Bell, reflects on the process and communication of monetary policy and examines four occasions on which the interest rate decision has 'surprised' the financial markets. The MPC is straightforward in its communications, she says, but monetary policy deals with risks and uncertainties and can be over-simplified or over-interpreted by commentators, keen for a direct steer on the next interest rate decision. Moreover, commentators need to distinguish between individual views and the collective message. There is an inevitable tension between the two, but individual accountability is an important factor in the strength of the current framework and it would be folly to interfere with it. It is unlikely that interest rate 'surprises' can be eliminated altogether in a transparent monetary policy regime. If monetary policy announcements contain new information on the state of the economy, perhaps because policymakers are better placed to interpret what macroeconomic news means for the outlook for inflation and output, then transparency might increase the extent to which financial markets react to policy announcements