Stefan Ingves: Communication – what demands are made of an independent central bank? Speech by Mr Stefan Ingves, Governor of the Sveriges Riksbank, at the Swedish Economics Association, Stockholm, 24 April 2007. *  *  *  Introduction I shall begin by thanking you for the invitation to the Swedish Economics Association. It has become a recurring and pleasant task for the Governor of the Riksbank to discuss the Riksbank’s activities with this knowledgeable assembly. Since I was last here, a year ago, quite a lot has happened in the monetary policy field. We at the Riksbank have, for instance, implemented a number of changes to make our communication clearer. We have replaced the earlier Inflation Report with a Monetary Policy Report. We intend that this change of name should signal that the report now contains a description of the considerations we have made when we have taken our interest rate decisions. Another new element is that we have now begun to present the forecast for the repo rate that we consider will provide well-balanced monetary policy ahead. There is nothing strange about our methods of working changing over time. We are constantly trying to improve and develop our methods. After all, monetary policy is also to a large extent a learning process. In part, this is a case of gradually discovering shortcomings in our methods of working and trying to remedy them.
BIS Review 40/2007  5  instance, the members may disagree as to how quickly inflation should be returned to target after a shock. This type of situation may be complicated. But after all, we have managed to agree earlier on interest rate messages that have contained information on our future intentions. Other arguments have also been put forward against publishing one’s own forecast for the development of the policy rate. One is that it could damage our credibility and make communication with the general public and the financial markets more difficult. Let us assume that the central bank first notifies a particular interest rate path but that new information is received afterwards, which leads to a policy rate decision that differs from the path published earlier. According to this argument, the deviation could be perceived as a failure by the central bank and could impair the bank’s credibility 7 . However, I am fairly convinced that it is the other way around – that communication will now be clearer and more efficient. I believe that there is currently widespread understanding among households, companies and market participants that monetary policy must be adjusted when the prevailing conditions change. A forecast is by nature uncertain and this applies even more the further ahead it stretches. We have also been clear on this point. Our assessment of the development of the repo rate, as presented in the Monetary Policy Report, is a forecast. It is not a promise!