What is forward guidance?

"Forward guidance" is the communication by the governing body of a central bank about its intentions concerning long-term interest rate policy, including the associated policy rate and any asset purchase programmes. With this, the central bank provides insight into the criteria and circumstances under which it will make adjustments to monetary policy, with the aim of managing market expectations.

Forward guidance offers financial markets clarity about the future direction of interest rate policy, but there is also criticism of this practice. Some argue that announcing long-term interest rate policy can lull markets into a false sense of security and make them overconfident, leading to excessive risks being taken. Opponents mockingly call this phenomenon "forward misguidance."