Bullock’s lack of forward guidance is good for flexibility
Any indication about the direction of interest rates which might be perceived as a promise can limit the central bank’s ability to be nimble, which is one of monetary policy’s greatest strengths.
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Significant change is afoot at the Reserve Bank of Australia. The central bank is holding fewer and longer board meetings and more press conferences, and has a revamped statement of monetary policy, among many other process changes. It may seem as though the recent “once in a generation” review has really shaken things up.
But the most significant change so far, from a market perspective, has little to do with the specific recommendations of the review. It is the new governor’s approach to forward guidance. Or, more precisely, lack thereof.
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Paul Bloxham is HSBC’s chief economist for Australia, New Zealand and global commodities.
