Cross-country evidence indicates that monetary transmission is greatly hindered if bank balance sheets are weak in that they do not have much loss-absorption capacity to deal squarely with their problem loans – indeed, the evidence suggests that there might be ever-greening of bad loans, and increased ‘zombie’ lending, lending to distressed firms at subsidized rates to kick the can of loan defaults down the road, resulting in misallocation of resources, productivity losses and weak growth.
Naturally, this means that the media is a critical component of the policy transmission mechanism and efficient communications is essential for the credibility of the entire policy framework. As a result, the BOU has revamped its communications policy to support the implementation of the inflation targeting-lite policy framework.