Should central bank keep all options open?

The Bank of England has announced it would require more time to consider all evidence then make its monetary policy (the base rates); therefore, it is unclear that whether the base rate is going to rise or fall in the near future. Here is a question that what impact the Bank of England’s unclear decision brings to the market.

The financial market reactions to uncertainty resolution and future expectations. Uncertainty resolution is when an event takes place, the price will collapse to the true value of the happened event from its previous expected value. This will cause a price change in the market and this could also be seen as a correction of price. When the Bank of England does not make decisions to resolve the uncertainty of the future interest rate, the market can stay as its previous expected value. However, it can change the market’s expectation, since the Bank of England thinks the fast fall of inflation is a surprise, the market could potentially reduce its expected probability of future interest rise, since the Bank is less likely to have rate hikes when the inflation is low.

However, in general case, when a central bank believes there is a surprise in the economy and cannot make immediate actions, it will increase the number of speculators in the market, leading to higher volatility.