Central bank communication in support of monetary policy

While central banks have long taken their monetary policy decisions in the shadows, keeping financial markets and the general public at bay, their communication strategy has evolved considerably. They are now opting for transparency, aware of their influence on the economic decisions of investors and households.

Influencing the decisions of economic players

" If you think I'm being clear, you've probably misunderstood me," said Alan Greenspan, then Governor of the US Federal Reserve, in 1988.

At the time, central banks deliberately kept their monetary policy decisions a secret, the better to surprise the financial markets.

For a long time, the European Central Bank has refused to communicate on future developments in its monetary policy. J.-C. Trichet, ECB President from 2003 to 2011, then his successor Mario Draghi at the start of his term, embodied this strategy of non-communication by repeatedly repeating the phrase:

" We never commit to the future.

The financial crisis of 2008 changed all that, introducing the principle of forward guidance. In a highly uncertain environment, marked by near-zero or even negative key interest rates, central banks decided to lift the veil on their monetary policy decisions.

By communicating with investors and households, central banks are now seeking to " influence the interest rate expectations of economic players ", as the Banque de France explains.

In concrete terms, a central bank seeking to push prices upwards to avoid deflation will announce that its key rates will remain low, thus encouraging commercial banks to lend at low rates, which will encourage companies to invest and boost household consumption. As a result, rising demand will drive up prices.

Gaining the trust of the general public

Today, the inflationary context is leading central banks to seek the opposite effect. By communicating their monetary policy decisions, they aim to persuade economic players that inflation is temporary, thereby preventing companies from pushing up prices further or raising wages too much.

However, while financial markets are very receptive to central bank announcements, businesses and households are less so.

"The limited interest shown by households and businesses in information about monetary policy and inflation is a major challenge for central banks," explains Bloc-notes Eco, the Banque de France blog.

As a result, many efforts are being made by the institution to attract the attention of this audience. In particular, it has launched its own podcast, "On parle cash", which deciphers major economic issues in two formats: one aimed at the general public, the other at an audience of experts. The Banque de France also posts educational videos on social networks.



For its part, the European Central Bank is also focusing on communication. All its monetary policy decisions are decoded, translated into 24 languages and made freely available on its website. The " ECB Listening " portal is presented as a communication interface between the institution and the general public, and a podcast has also been launched.

Communication is also used by central banks as a means of gaining the trust of the general public, and proving the independence of their monetary policy decisions.