How central banks communicate It is widely accepted today that independent central banks are best placed to maintain price stability in the economy. The Maastricht Treaty, therefore, has bestowed the ECB with full independence in the pursuit of its mandate. In a democracy, independence must be accompanied by both transparency and accountability to the general public. In other words, it is the duty of independent central banks to be transparent and to communicate not only with specialised audiences, such as financial market participants, but also with the public at large. Transparency is multi-faceted, but basically involves making information available to each interested party that is “relevant” for their understanding of monetary policy decisions. Central banks’ approach to communications has changed radically in recent years. About more than a decade ago, most central bankers believed that “secrecy” about their actions and intentions would be key to successful monetary policy.. Theoretical studies at that time suggested that secrecy and occasional “surprises” would make monetary policy more effective. 1 Advancements in economic and monetary theory seem to have altered this paradigm. Today, most central banks around the world accept the importance of high standards in terms of transparency and greatly emphasise the need for clarity in their communications. To give an example, it is common practice nowadays among central banks – and in particular at the ECB – to inform the public about monetary policy decisions as soon as the decision is taken. The ECB was the first to do so among major central banks in the industrialised world.

As regards the MPR, the baseline scenario uses as a working assumption that it will follow a trajectory comparable to the one assumed in the various expectations indicators. This ensures that monetary policy will remain expansionary throughout the projection horizon. As always, the implementation of monetary policy and any possible adjustments to the policy rate will be conditional on incoming information and its effects on the projected inflation dynamic (figure 13). On the external front, although the market anticipates an increase in the fiscal impulse in the United States, with planned infrastructure works, tax cuts and measures generally intended to boost growth, their details are still unknown, as is the time it will take to carry them out. In that sense, there is the possibility of a significant fiscal package that results in higher economic growth in the US and the rest of the world. However, another possibility is that the impulse disappoints and financial markets deteriorate, ending up in dominating negative effects. The US inflation outlook also poses risks, as it could precipitate a more aggressive behavior of the Fed. For now, after the meeting of last week, the Fed announced a slightly faster withdrawal of the monetary stimulus. The effects of potential protectionist measures on world activity and trade has to be considered as well. All this, with Brexit’s effects still in the dark and with several major European economies preparing election processes. Plus doubts surrounding the soundness of some European banks.