UPDATE 1-Bank of Canada's Poloz: Markets adapting to life without guidance

(Adds comments from Poloz's speech, background on Bank of Canada)

OTTAWA, March 1 (Reuters) - Markets are adapting to making their own forecasts on where interest rates are going, the head of the Bank of Canada said on Thursday, though he acknowledged the decision to drop forward guidance four years ago has met some criticism.

In a speech given while accepting an award in London, Bank of Canada Governor Stephen Poloz said he was certain that the best approach was to communicate openly about the central bank's reaction function and the key risks policymakers see.

"To be truly honest about the uncertainties we face, we stopped providing routine forward guidance, which observers and market participants had come to rely on," Poloz said.

"We took some grief for this decision," he added.

The bank in 2014 stopped giving forward guidance that provides a direct hint on the next move in interest rates. It has since taken criticism for surprising the market with interest rate moves, particularly in 2015 when it unexpectedly cut rates in the face of the oil price shock.

More recently, the central bank last September had to defend nearly two months of silence leading up to a rate hike that some said left markets inadequately prepared for the move.

Poloz on Thursday said the bank's method allows markets to assess economic data and make their own projections on the future path of interest rates.

"It has taken time, but markets and observers are increasingly adapting to our approach," Poloz said.

The bank has raised interest rates three times since last July and has said it will be cautious and watch incoming data as it considers more hikes. (Reporting by Leah Schnurr Editing by Matthew Lewis)