Jean-Pierre Roth: No news, good news - transparency and communication in monetary policy Address by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the Annual Meeting of the European Business Press, Zurich, 16 June 2006. This paper was prepared with the support of Martin Brown, International Research and Technical Assistance Section, Swiss National Bank. *  *  *  Introductory remarks Ladies and gentlemen, it is a great pleasure to address you here, on the occasion of your annual meeting. I would like to take this unique opportunity to talk about an issue which, in recent years, has strongly affected my job as a central bank's President and your work as journalists: transparency and communication in monetary policy. Over the past two decades, central banks, especially in Europe, have undoubtedly be-come more transparent. Central bankers now regularly communicate their assessment of inflationary pressures to the public and go to great lengths to explain their monetary policy stance. Gone are the days when central banks argued that secrecy was an essential ingredient of an effective monetary policy. As a consequence, monetary policy decisions are no longer taken at irregular intervals or at weekends, in order to surprise markets on Monday mornings. This, of course, is fortunate for business journalists. You no longer need to spend your weekends worrying that you might have to suddenly start writing about a surprise policy intervention.
Market predictions of monetary policy measures have been accurate, leading to lower volatility in financial markets and improving the effectiveness of our policy measures A prime example of this is the most recent increase in our operational target in March 2006. An analysis of interest rate movements shows that the increase of our operational target by 25 basis points was almost fully anticipated by financial markets prior to the announcement. Contrary to what many believe, a central bank does not lose any prestige in seeing its policy correctly anticipated by the markets. It is just proof of a well-understood monetary strategy. 3. Credibility - words are not enough  In Switzerland, the systematic communication of monetary policy has had the desired effect of getting market participants to adapt their expectations well before actual policy interventions are made. Does this mean that the Swiss National Bank now only has to indicate its intentions in order to influence interest rates? Or as some academics and practitioners have posed the question: can central bankers now replace open market operations with "open mouth" interventions? Considering the recent tightening of monetary policy in Switzerland, one might be tempted to agree that open mouth operations are sufficient to move interest rates. After all, short-term interest rates rose long before an increase in the operational target was announced or before we raised the actual interest rates on repo transactions. However, this interpretation of the data ignores one crucial issue.