IMF Seminar: Effective Central Bank Communication

June 05, 2018 

The International Monetary Fund (IMF) hosted the Central Bank Communication seminar today. This seminar was based on recently released Regional Economic Outlook (REO) for the Western Hemisphere region, which was presented by Etibar Jafarov, IMF’s Senior Economist for the Western Hemisphere.

Mr. Jafarov explained that a Country’s Central Bank credibility reflected by the degree of anchoring in inflation expectations plays a critical role in policy decisions in response to these shocks and can benefit immensely from transparency and clear communication.

He further explained that “stronger transparency frameworks and communication strategies that is, how openly and how well the Central Bank communicates in guiding markets, are found to be associated with more predictable policy decisions and a better anchoring of inflation expectations. This, in turn, can provide greater room to manoeuvre interest rate policy in the face of transitory inflation shocks through enhanced central bank credibility.”

He indicated that the Central Banks within the Latin American Countries are at different stages of development in their transparency framework and communications, but there is however scope for increasing transparency in the region.

He highlighted that, “effective communication strategies not only depend on what type of information Central Banks publish but also how this information is communicated to the general public.” Interestingly, he provided statistical data which implies that:

  • Markets do listen to the Central Bank and their communication tone in particular affects market rates.
  • Central Banks that communicate clearly and unambiguously tend to be among the most predictable
  • Explicit policy guidance (example an easing or tightening “bias”) considerably improves the transmission of policy rates.

In ending his discussion, possible measures were provided to enhance the Region’s transparency framework:

  • Fill current data gaps – increasing the horizon of expectation surveys.
  • Consider publishing the votes and comments of individual members.
  • For some Central Banks, publish minutes of the policy meetings.
  • Reduce the lag in the publication of the minutes.

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