This innovation in the communication framework has directly served to signal consistency in policy conduct at a time when, first, proximity to the effective lower bound on policy-controlled short-term interest rates might have raised doubts as to the central bank’s options to deliver the requisite amount of monetary easing; and, second, the adoption of new, previously unknown, policy tools left observers without a clear historical reference point to gauge the central bank reaction function.
Furthermore, especially in its outcome-based formulation, forward guidance has explicitly maintained the state contingency of policy conduct and established a clear link between the policy objective and the future evolution of policy tools – a consideration that also formed the backdrop for the Governing Council’s decision in October to reconfirm the outcomebased element of its forward guidance on the expanded asset purchase programme, which remains contingent on a sustained adjustment in the path of inflation.