Jean-Claude Trichet: Communication, transparency and the ECB’s monetary policy Keynote speech by Mr Jean-Claude Trichet, President of the European Central Bank, at the New Year’s reception of the International Club of Frankfurt Economic Journalists, Frankfurt, 24 January 2005. *  *  *  Ladies and gentlemen, It is a great pleasure to be here at the New Year’s reception of the International Club of Frankfurt Economic Journalists. This is certainly the right place for me to discuss the “art of external communication”. The members of this club are among the most experienced and knowledgeable watchers of the ECB. Through your reporting you play a decisive role in our communication policy. Along with other media you have the important responsibility of informing the public about the Eurosystem’s monetary policy as well as other central banking activities and of contributing to a constructive public dialogue on our policies. Much has been said about the external communication of central banks in recent years and central bankers have reflected intensively on their external communication. Transparency, candid explanations given to investors, savers, market participants, households and, last but not least, to our 306 million European fellow citizens are of the essence for the ECB and its Governing Council. It is fair to say that communication is an integral part of monetary policy. Why are accountability and transparency so important for monetary policy?

The economic agents and the public need to be convinced that the central bank’s monetary policy decisions are consistently focused over time on achieving the announced aim. In a market-based economy the central bank can directly influence only short-term interest rates through its monetary policy instruments. However, consumption and investment decisions, and thus medium-term price developments, are to a large extent influenced by longer-term interest rates, which depend on private expectations regarding future central bank decisions and future inflation. It is important that these developments in longer-term rates support the objective of maintaining price stability over the medium term. This in turn requires that the central bank is regarded as credible and predictable. A central bank which does not succeed in communicating the principles underlying its monetary policy and is perceived as acting in a non-systematic, discretionary manner will over time endanger its reputation. Therefore, the central bank’s communication should ensure that markets understand the systematic responses of monetary policy to economic developments and the current assessment of the central bank. Successful central bank communication supports predictability and correct price formation in financial markets, contributes to efficient allocation of funds and reduces uncertainty about future interest rates. In an environment where the predictability of interest rate movements and their relation  BIS Review 5/2005  1  with key macroeconomic developments is well understood, firms can better manage their balance sheets. This reduces both their vulnerability to economic shocks and their risk management costs and creates the conditions for better investment decisions.