Central bankers in modern times hardly follow a simple feedback rule – all central banks, including the inflation targetors, take into account a wealth of information in deciding the future course of monetary policy and follow what is termed as the ‘forecast-based approach’.
In this case, the public are not able to infer the likely course of policy so easily and need guidance about the central bank’s perception of outlooks, risk assessments, and objectives. Clear and transparent communication plays an important role in this case. The need for communication from the central banks also comes from another distinct source.