Uncertainty, the Implementation of Monetary Policy and the Management of Risk

In a speech given today to the Association of Corporate Treasurers in Newport, Paul Tucker – Executive Director for Markets and a member of the Monetary Policy Committee – discusses sources of volatility and uncertainty facing firms and financial markets.
Published on 19 May 2006

Some past sources of uncertainty were avoidable. He highlights how a more stable monetary environment has helped to remove uncertainty about policy makers’ objectives, although it cannot eliminate uncertainty about the short-term path of the economy or official interest rates as the MPC itself responds to unpredictable cyclical developments. Alongside this unavoidable uncertainty, there has been some avoidable and undesirable uncertainty about short-term sterling money market interest rates. As Paul Tucker stresses, given the MPC decides its interest rate each month, “…there should be no uncertainty about the general level of overnight rates in the money markets.” The reality, however, has been that overnight interest rates in the UK have historically been highly volatile. Paul Tucker says, “That has created uncertainty for users of the sterling money markets – banks, asset managers and, of course, corporate treasurers.”

PDFPress release

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