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Mark Carney signals Bank of England shakeup Mark Carney signals Bank of England shakeup
(about 7 hours later)
Policymakers at the Bank of England will reduce their number of interest rate decisions to eight a year from 12 as part of a radical overhaul of processes at the 320-year old institution. Policymakers at the Bank of England will reduce interest rate decisions from monthly pronouncements to eight a year as part of a radical overhaul to make the 320-year old institution more transparent.
The change, supported by the governor Mark Carney, would amount to meetings every six weeks from 2016 if the recommendation is approved in parliament. The move to meetings every six weeks from 2016 marks a major departure for Threadneedle Street, where the current timetable has been a feature of the Bank since inflation targeting began in the UK in 1993.
The proposal would bring the MPC’s timetable in line with the Bank of Canada, which has eight policy meetings a year and where Carney was governor until he was appointed to the top job at Threadneedle Street last year. The proposal, which requires approval by parliament, would bring the monetary policy committee’s scheduling in line with the US Federal Reserve and the Bank of Canada, which have eight policy meetings a year. The European Central Bank had previously announced that it will move down from 12 meetings to eight meetings next year.
It was part of a wider set of proposals recommended by Kevin Warsh, a former White House adviser and member of the board of governors of the Federal Reserve System. “I think we meet too often,” said Carney, referring to the monthly MPC meetings. Adam Posen, a former member of the MPC, said the move to fewer meetings was “wise”, adding on Twitter: “Monetary policy isn’t about overreacting to month-to-month data outside crises”.
Carney said the changes amounted to a “step change” in the way the Bank is run, putting it at the “forefront of international best practice”. The decision was part of a wider set of proposals recommended by Kevin Warsh - a former White House adviser and former Federal Reserve Board governor- to improve transparency at the Bank and make policymakers more accountable for their decisions.
In a bid to make the Bank more transparent, written transcripts will be taken at MPC meetings from March 2015. Transcripts will be published after an eight-year lag. In a second change, written transcripts of MPC meetings will be published with an eight-year lag from March 2015, giving greater insight into the views of each member of the nine-strong committee.
Minutes of MPC meetings, currently published with a two-week lag, will be published at the same time as policy decisions from August 2015. Carney said: “This is about reputation. It reinforces individual accountability.”
Carney said: “The Bank has immense responsibilities for monetary stability, financial stability and for micro-prudential regulation. And with these responsibilities comes the need for effective transparency, genuine accountability and robust governance.” Warsh said the publication of transcripts would put the Bank among the “top tier” of central banks for transparency, alongside the Fed and the Bank of Japan which already publish transcripts.
Carney commissioned the review following an exchange with Andrew Tyrie, chairman of the House of Commons Treasury Select Committee, at a hearing six months ago. Tyrie was shocked that the recordings taken of the MPC meetings were later routinely destroyed, saying that the detail of the meetings could have real historical value. Carney said the changes amounted to a “step change” in the way the Bank is run and making it more accountable to the British people.
The moves were welcomed by George Osborne. “Ensuring the Bank is well positioned to fulfil its vital role of overseeing monetary policy and financial stability is a key part of the government’s long-term economic plan,” the chancellor said. “The Bank has immense responsibilities for monetary stability, financial stability and for micro-prudential regulation. And with these responsibilities comes the need for effective transparency, genuine accountability and robust governance.”
As part of the changes, there will be four joint meetings a year between the MPC and the Bank’s Financial Policy Committee – responsible for financial stability – in 2016. Thirdly, minutes of MPC meetings, currently published with a two-week lag, will be available at the same time as policy decisions are announced from August 2015. Howard Archer, chief UK economist at IHS Global Insight, said it would allow markets to make more informed views about where policy was heading.
In January 2015, minutes from the Bank’s Court taken at meetings during the financial crisis of 2007-09 will be published. He said: “This should help to limit the risk of potentially damaging market swings that can occur when a policy decision is taken but the full reasons are not known for two weeks after. It should also reduce the risk of misinterpretations of the Bank of England’s policy decision by analysts, the markets and corporate decision makers.”
In relevant months, policy decisions will be published at the same time as the Bank’s inflation report - when it updates its economic forecasts - as well as the MPC minutes.
Carney said: “By removing the present drip feed of news in favour of a single monetary policy announcement, we believe these arrangements will enhance the effectiveness of our monetary policy communications, making the policy signals we send as clear as possible.”
However Samuel Tombs, senior UK economist at Capital Economics, said there was a risk that publishing so much information at once could overwhelm the markets and media.
Carney commissioned the review following an exchange with Andrew Tyrie, chairman of the House of Commons Treasury select committee, at a hearing in March. Tyrie was shocked that the recordings taken of the MPC meetings were later routinely destroyed, saying that the detail of the meetings could have real historical value.
In response to the proposals announced , Tyrie said: “A crucial task for the Treasury Committee will be to examine how the Bank operates these new arrangements in practice, and in particular, the extent to which the enhanced transparency and explanation now required of the Bank can encourage good decision taking. This will be the acid test.”
The proposals were welcomed by the chancellor, who said they would be considered for legislation in the next parliament.
In a fourth proposed change for monetary policy processes at the Bank, there will be four joint meetings a year between the MPC and the Bank’s Financial Policy Committee – responsible for financial stability – in 2016, in order to better share information relevant to both, for example on the housing market.
Minutes from the Bank’s Court taken at meetings during the financial crisis of 2007-09 will be published in early January. The minutes of Court meetings held between 1914 and 1987 will also be published during 2015.
As well as changes to the monetary policy processes, the Bank proposed a new governance structure bringing it closer in line with the structure of a private sector institution. The Bank’s court would comprise five Bank executives - the governor and four deputies - and seven non-executives.