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Economics vocabulary · Central Banks and Interest Rates

Forward guidance

Meaning in economics, with examples

nounAdvanced term

In economics, forward guidance means: Communication by a central bank about the likely future path of interest rates, used to shape what markets and the public expect.

In Turkish: ileriye dönük yönlendirme, ileriye yönelik rehberlik

How it is used

Became a major policy tool after 2008, when interest rates were close to zero. Guidance can be time-based (rates will stay low until next year) or data-dependent (until inflation falls below a certain level). Central banks give, change or drop forward guidance, and markets react to every word.

Example sentences

  1. The bank's forward guidance suggests no rate cuts before the summer.

  2. By changing its forward guidance, the central bank surprised the markets.

Common collocations

  • give forward guidance
  • change forward guidance
  • time-based forward guidance
  • data-dependent guidance
  • inflation expectationsWhat households, firms and investors believe inflation will be in the future; these beliefs affect wage demands, prices and interest rates today.
  • monetary policy committeeThe group of officials inside a central bank who meet regularly to decide on interest rates and other monetary policy tools.
  • hawkishFavouring higher interest rates or tighter monetary policy because controlling inflation is seen as the top priority.
  • dovishFavouring lower interest rates or looser monetary policy, usually because supporting growth and jobs seems more urgent than fighting inflation.
  • policy rateThe main interest rate set by a central bank, which guides the rates that banks charge each other, businesses and households.

More terms: Central Banks and Interest Rates

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