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!
It has on these occasions been clearly understood that the Executive Board members are expressing their own personal opinions. One could call this a sort of “signalling by degrees”. That is, when the interest rate  7  See, for example, Giavazzi, F. and F. Mishkin (2006), “An evaluation of Swedish monetary policy between 1995 and 2005”, Reports from the Riksdag 2006/07:RFR 1, Committee on Finance. 6  BIS Review 40/2007  decision has been taken at the monetary policy meeting enough information should have already been signalled by degrees so that economic agents are not taken by surprise. And on the whole, our signalling policy appears to have worked quite well. But, like many other things, the demands made of our signalling have changed over time. Things look quite different today from when the inflation target was new and confidence in monetary policy was low. This is partly linked to the fact that for some years we have been an independent authority, with the demands for insight that this entails. It is also, as I have just implied, connected to the important changes we have recently made in our communication. Moreover, there may be some potential problems in the way we have signalled previously, although as I said it has worked fairly well. I intend to mainly focus on the time aspect of the signalling, that is, when or how often we signal or should do so.