speaking

Sri Lanka stresses benefits of clear communication

Sri Lanka’s top policymaker underscored the importance of clear and consistent communication in managing the public’s expectations about inflation.

Nandalal Weerasinghe, Senior Deputy Governor at the Central Bank of Sri Lanka, noted in a speech on Evolution of Monetary and Exchange Rate Policy in Sri Lanka and the Way Forward:

“… the intent of the Central Bank to maintain inflation at mid-single digit levels, which was made clear through action as well as through communication, enabled the Central Bank to change the mindset of the people that Sri Lanka is typically an economy with double digit inflation. The change in the mindset was visible in improving inflation expectations … Sri Lanka’s achievement of single digit inflation for 105 consecutive months had little to do with monetary aggregate targeting. Instead, it was a result of the Central Bank’s ability to anchor inflation expectations, by repeatedly emphasising its utmost desire to maintain inflation at mid-single digit levels.”

INCREASING POLICY TRANSPARENCY

The Central Bank’s plan to fully implement what it calls “flexible inflation targeting” by 2020 will require, as Weerasinghe put it, "increased efforts" to build all the necessary preconditions for success. Increasing transparency will be key in this regard:

A key advantage of inflation targeting is that it is easier for the general public to relate to. Since inflation is well understood by the public, the inflation forecast will serve as an ideal anchor and, with improved communication, will help bridge the information gap between the central bank and the public. Reference to such a straightforward target, rather than to an elusive monetary target, will ensure increased transparency and accountability while enabling the public to understand policy shortcomings.

EYEING INFLATION REPORT IN 2020

The next step in increasing the Central Bank's forecast transparency will be the publication of comprehensive Inflation Reports, expected by 2020:

“The Inflation Report will explain inflation developments, inflation expectations, projections for inflation and other key macroeconomic variables, the assumptions behind such projections, reasons for any deviation of actual inflation developments from targeted levels, and remedial actions to be taken in the case of deviations.”

I have advised Sri Lanka's central bank on policy communications and think that its experience, if successful in evolving into an inflation targeter in the coming years, may inform the initiatives of other developing countries' central banks which have been switching to more forward-looking policy frameworks.

Czech governor breaks central banking communications etiquette as he receives award

Czech National Bank Governor Jiri Rusnok blundered when receiving the Central Bank Governor of the Year Award for Central and Eastern Europe 2017 by Global Markets for “managing the removal of a three-year cap on the koruna with a minimum of market disruption”.

In his acceptance address posted on the Czech central bank’s website, Rusnok — a former politician just over a year in the top job — said with a subtle half-smile on his face:

“Along with the Swiss National Bank and the Bank of Israel, the Czech National Bank is the only central bank in modern history to have used the exchange rate so significantly as the main instrument of monetary policy. As is well known, the Swiss exit didn’t go too well. The Swiss National Bank is certainly not winning any awards for it, nor it is likely to.”

With those words, Rusnok seemed to mock his Swiss colleagues for failing to engineer a smooth exit from their exchange rate floor in January 2015.

The unspoken convention of central banking communications has long been that central bankers from one country do not tell their colleagues from another country what kind of policy should they pursue, nor do they criticise publicly their policy actions and pronouncements.

Rusnok’s words could be seen as breaking the etiquette. Absolutely unnecessary.

Central bankers ignore public speaking rehearsals at their own peril

An important tidbit of information from this week’s post-FMOC press conference:

Fed Chair Janet Yellen clearly was well prepared to face journalists' questions about the U.S. election, and Donald Trump in particular. As an eagle-eye journalist pointed out, Yellen was apparently reading from a prepared statement when answering a question whether the Fed was keeping interest rates artificially low to support the Obama administration, as the Republican presidential nominee has charged.

United States Federal Reserve Chair Janet Yellen holds a news conference following the two-day Federal Open Market Committee meeting in Washington, U.S., September 21, 2016. (Reuters picture)

United States Federal Reserve Chair Janet Yellen holds a news conference following the two-day Federal Open Market Committee meeting in Washington, U.S., September 21, 2016. (Reuters picture)

Here is the relevant part of transcript of Chair Yellen’s press conference):

JON HILSENRATH. Jon Hilsenrath, from the Wall Street Journal. Chair Yellen, Donald Trump, the Republican presidential nominee has charged that the Fed is keeping interest rates artificially low to support the Obama administration. I'd like to hear what you have to say to that charge. And on a related note, I wanted to ask you about the Fed's next policy meeting which is in early November a week before the next election, given that the case for raising rates you say today has strengthened, should the public see that November meeting as a live meeting when a rate action could happen? Thank you.

CHAIR YELLEN. Well, I think Congress very wisely established the Federal Reserve is an independent agency in order to insulate monetary policy from short term political pressures. And I can say, emphatically, that partisan politics plays no role in our decisions about the appropriate stance of monetary policy. We are trying to decide what the best policy is to foster price stability and maximum employment and to manage the variety of risks that we see is affecting the outlook. We do not discuss politics at our meetings and we do not take politics into account in our decisions. As I said, we're generally pleased with the progress of the economy. And the decision not to raise rates today and to wait for some further evidence that we're continuing on this course is largely based on the judgment that we're not seeing evidence that the economy is overheating. And that we are seeing evidence that people are being drawn in, in larger numbers than at least I would have expected into the labor market and that that's healthy to continue. But that nevertheless, we do need to be forward looking. And if we continue along this course, it likely will be appropriate to raise the federal funds rate. And November, you asked about as well. Well, every meeting is live and we will again assess as we always do incoming evidence in November and decide whether or not a move is warranted.

When I speak to senior central bankers in various parts of the world — be it Eastern Europe, central Asia, or Africa — I always stress the importance of devoting time and effort to prepare Governors well for public appearances such as press conferences or speeches. A nation’s leading central banker ignores rehearsals ahead of his or her public speaking engagements at their own peril.

When Fed’s Fischer speaks, markets listen

When Federal Reserve Vice Chairman Stanley Fischer speaks, markets listen. Not only because Mr. Fischer is an influential member of the Fed’s policy-making body. Also because the former Governor of the Bank of Israel, prior to his appointment to the Fed, seems to be carefully choosing when and what to say.

This week, just as markets across the globe were digesting the shock British vote to leave the EU, Mr. Fischer offered his first public comments on the economy and monetary policy since March 7, according to Bloomberg.

Fischer said the US policymakers were in a wait-and-see mode following the British referendum on the EU:

“We got hit by something. We are still evaluating it,” he said on CNBC. “My guess is that it will be less important for the U.S. than the countries directly involved -- almost just logically so. We will wait and see.”

“… so as we consider the effects of Brexit, we have to put that effect on the U.S. together with what else is going on in the U.S. economy,” he said. “I hope that we strengthen, and that the economy strengthens, and that we continue along this slow, very gradual path we’ve been on.”

Clearly quite a re-assuring talk by a steady-hand at the Fed’s helm.

To me, it comes as a little surprise that Fischer’s first public appearance in three months came just now, amidst the market turmoil caused by the Brexit. When else to use communications as a tool to re-assure the nervous markets that it was business as usual at the US central bank.

Plain talk by BoE: One can hardly understand us

Pretty much every central bank has sought to simplify its policy message and make it as clear and accessible to the general public as possible. However, few central banks are as transparent as the Bank of England to admit publicly that their efforts are bringing little results.

Bloomberg, reporting on a talk given by Andrew Haldane, BoE's Chief Economist:

Communications from the U.K. central bank are too complex and inaccessible to the man on the street, Haldane said in a — ahem — 9,000-word speech in London on Wednesday.

Haldane, saying in his speech:

... the vast majority of the Bank’s publications may be inaccessible to the vast majority of the general public.

Having assessed my own speeches, including this one, the conclusion is much the same. They, too, are likely to be impenetrable to most.

Plainly, there is further still for us all to go, myself very much included, in simplifying our communications to enable us to speak clearly to those we serve.

Finally, the central banker used plain and simple language to "plainly" sum up his message.

As Haldane himself demonstrated in his talk, speaking clearly, in an easily-accessible language, on complex financial and central banking topics is indeed a difficult mission to accomplish.

Banco de México on "consolidating convergence" to its target

Agustín Carstens, Governor of Banco de México, saying in a presentation released on the central bank's website:

The Board of Governors estimates that the current monetary policy stance is congruent with the consolidation of inflation convergence towards to the permanent 3 percent target.

A nice overview of the outlook for the Mexican economy, even though Carstens could have used a little clearer and simpler language.

Releasing the presentation, apparently delivered to an investor forum behind closed doors, not only promotes transparency, but is an opportunity for the central bank to re-iterate its policy communication mantras.

The outlook, and the assessment of risks facing Mexican economy, was neatly summed up by Deputy Governor Manuel Sánchez in recently released remarks:

Mexico has an unprecedented opportunity to consolidate convergence to the inflation target, given unusually subdued price pressures.

"Consolidating convergence to the target" clearly is one of the key mantras in Mexico at present.

Yellen speech elicits praise

Fed chair Janet Yellen received words of praise from analysts following her speech that was was packed with explanations about current US policy.

A quote from a Bloomberg report:

"I thought it was her best performance since she has been chair," said Michael Gapen, chief U.S. economist at Barclays in New York. "In the absence of unity, the chair has to exert leadership and it felt like she exerted that."

That surely was a speech that could serve as a role model for many sitting or incoming governors.