For example in our latest Inflation Report we published a central projection which showed inflation rising gently but steadily above the 2% target, assuming a nearly flat profile of interest rates out to three years. But the Report noted that the balance of risks was to the downside and singled out some key near term risk areas, such as the household sector. This provided a nuanced background to the MPC’s February decision to hold rates unchanged. Forecasts and public communication All inflation targeting central banks use their forecasts as a communication tool. They provide a coherent statement of policymakers’ thinking about the economic outlook and the policy stance. Together with the minutes of the policy meetings (in our case published with individual votes after two weeks), this helps to discharge the Committee’s democratic duty to explain itself, as well as supporting its credibility and helping to anchor inflation expectations.13 The Inflation Report plays a central role in the Committee’s communication. Since August 2003 the Governor has fronted the regular Inflation Report press conference, and the MPC’s appearances in front of the Treasury Select Committee has been (loosely) linked to the Inflation Report cycle. This brings me to a much debated question: how much information should a central bank provide? Academics have tended to press the case for more transparency, while practicing central bankers have been more cautious, (though much more predisposed to openness than they would have been twenty years ago).
7/7