“Explicit state-contingent forward guidance” doesn't sound very radical but it is. With it, the UK's central bank quietly adopted the Fed's approach to setting interest rates. The Bank of England's Monetary Policy Committee (MPC) announced that, in effect, British monetary policy will depend on the unemployment rate. Until the unemployment rate falls below 7%, the Bank rate will stay at 0.50% and its quantitative easing (QE) program, at a minimum of 375 billion pounds sterling. Unemployment stood at 7.8% in the three months ending in May. Per the MPC, “unemployment is as likely to reach the 7% threshold beyond its three year forecast horizon as before”. There are three caveats, two of which have to do with inflation. The third is so long as the accommodative policy doesn't pose a significant threat to financial stability.
No central bank can afford to ignore growth, even banks with the sole mandate of controlling inflation. The decisions of the Fed and the Bank of England make it clear that unemployment comes under their umbrellas as well. Banco de Mexico has yet to be so explicit, but its statements and presentations leave no doubt that growth is very much on the minds of Mexico's central bankers.
No central bank can afford to ignore growth, even banks with the sole mandate of controlling inflation. The decisions of the Fed and the Bank of England make it clear that unemployment comes under their umbrellas as well. Banco de Mexico has yet to be so explicit, but its statements and presentations leave no doubt that growth is very much on the minds of Mexico's central bankers.
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