Erik Thedéen: Monetary policy communication in practice

The Riksbank is one of the most transparent central banks

Today, central banks spend a lot of time communicating what they do and why, and endeavour to make the information understandable. This is a major shift compared to a few decades ago. The Riksbank is currently ranked as one of the most transparent central banks. This is the result of a determined effort carried out parallel to the development of inflation targeting.

There are many similarities between how the Riksbank and other central banks communicate about monetary policy. But on some points the Riksbank has chosen to be more open. For instance, the Riksbank publishes its own forecast for the policy rate, and the minutes of the monetary policy meetings show which member of the Executive Board said what. The Riksbank has chosen to be more transparent partly because of a generally favourable attitude towards transparency, and partly because of changes that the Riksbank has made to facilitate its internal work, said Mr Thedéen. He also emphasised that conditions differ between central banks, which may affect how and what they choose to communicate.

“The Riksbank publishes interest rate forecasts because we want to be transparent and provide information that makes it easier to understand how we normally act, which should not be interpreted as information on exactly what we will do. On this basis, it is natural for us to change our interest rate forecast. If conditions change, we may need to adjust monetary policy to keep inflation low and stable.” As for the minutes of the Riksbank's monetary policy meetings, they show the nuances of the Executive Board, continued Mr Thedéen. “While we are not expected to be unanimous in our monetary policy decisions, a group of five may need to compromise on details to reach a majority view. It is easier when there is an opportunity to nuance individual positions in the minutes.”

Communicating uncertainty is a challenge

Regardless of how central banks communicate, they all face similar challenges in getting their messages across. One of the major challenges concerns uncertainty and risk. “It is important that the uncertainty in the central bank's assessments is recognised and that households, businesses and market participants understand that it exists,” said Mr Thedéen. He thought that this was particularly true for the guidance on future monetary policy, where experience has shown that such guidance can be interpreted as more certain statements than central banks have intended.

Mr Thedéen mentioned that the great uncertainty that now exists regarding the global economic outlook has led several central banks, including the Riksbank, to emphasise more than before that monetary policy will be determined by new information on the outlook for the economy and inflation. Moreover, some central banks have basically stopped talking about monetary policy going forward. “The Riksbank has continued to publish interest rate forecasts. But we have made some changes to address the communication challenges we have faced, including the communication of the interest rate forecast. We are also now emphasising alternative scenarios more in our communication.”