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.

The decentralised nature of the Eurosystem is an asset especially for communications with the general public. The Governors address in their country their national public in their own language. They are very well placed to participate in economic debates taking place in their home country. Finally, the ECB publishes a large array of statistics, adding essential information on the euro area available to financial markets and all other interested agents. There has been an ongoing process of extending the number of statistical series released by the ECB, which I expect to continue in the future. As a latest example, last week we have published for the first time a press release providing a geographical breakdown of balance of payments and international investment position statistics. Our concept of transparency Transparency serves our main objective of maintaining price stability. As we are a unique institution which has no precedent we have to consider very carefully the appropriate concept of transparency in our decision-making. We are convinced that as a collective body it is beneficial for the Governing Council to give its collegial assessment in the form of a comprehensive and detailed statement rather than only stating the decision and letting the interested parties wait for the detailed statement to be published later in the form of minutes. Our method of real-time communication on behalf of the Governing Council also goes to demonstrate that we are collectively accountable to the public.