After first steer, Carney faces bigger guidance challenge
By William Schomberg
LONDON (Reuters) - Mark Carney has wasted no time telling investors they are getting ahead of themselves with their bets on when British interest rates might start to rise.
Now the new governor of the Bank of England faces the trickier challenge of giving financial markets clearer guidance on how long borrowing costs are likely to stay at record lows.
Unlike the European Central Bank, which pledged to keep interest rates low for "an extended period" on Thursday, the BoE is expected to get specific when it unveils its plans for so-called forward guidance next month.
Just how specific is a big question for markets which have turned volatile in recent weeks and pushed up yields on government bonds, including British gilts, on concerns about the U.S. central bank scaling back its economic stimulus.
On Thursday, the first MPC meeting chaired by Carney shocked markets when it took the unusual step of issuing a statement to warn investors that they were pricing in a rate hike too soon.
"The Monetary Policy Committee has made it clear what it thinks rate expectations should not be," said Simon Hayes, an economist at Barclays.
"What they need to do now is give a clearer indication of what they think interest rate expectations should be, and that's a much bigger challenge."
Carney is widely expected to back the case for the BoE to give forward guidance on monetary policy, something he pioneered while in charge of the Bank of Canada. Continued...