mugur isarescu : central bank communication as a policy tool - an ongoing challenge speech by mr mugur isarescu, governor of the national bank of romania, at " the 41th meeting of the central banks governors ’ club of the central asia, black sea region and balkan countries ", istanbul, 25 march 2019. * * * as prepared for delivery distinguished audience, dear colleagues, it is a great pleasure for me to address this distinguished panel on a topic that is both important and challenging for central banking. the session ’ s title includes three key issues : effectiveness, knowledge and trust, all in relation to the manner in which central banks communicate their policies and actions. i would like to share with you some general thoughts regarding these issues, as well as the national bank of romania ’ s experience in this area over the recent years. more transparency, commitments too views and practices concerning transparency and communication have evolved dramatically in the last decade. not long ago, the conventional wisdom was that monetary policymakers should say as little as possible, take markets by surprise and be rather cryptic. things have changed, as the more independent central banks also became accountable for the ‘ public goods ’ they were called to provide for : a credible and convertible currency, price stability, employment and growth in other cases, banking sector supervision and financial stability. people tend to take these ‘ public goods ’ for granted, appreciating their importance only when lost. clear communication of the central bank ’ s objectives, policy strategy and its decisions proved essential to anchoring inflation expectations and enhancing monetary policy effectiveness. however, most research works in this area show that increased transparency is not enough. a central bank must demonstrate commitment and ability to achieve its objectives through a systematic implementation of its policies. the markets and the public at large need to be convinced by central banks through consistent and effective words and policy actions, formulated as plainly as possible, in order to build knowledge and confidence – all vital for an effective management of public expectations. despite a growing recognition of the importance of transparency in monetary policymaking, no consensus has emerged yet – either among academics or central banks. there is still debate on what is the appropriate degree of transparency or the best communication path, so that the two factors can contribute to an effective achievement of policy objectives as well as an efficient market functioning. the ‘ best practice ’ in the field depends, inter alia, on the size, structure and complexity of the economy, its global interlinkages and policy cycles,

running at 300 percent back in the 1990s and succeeded to tame prices in the single - digit zone for over more than a decade, this divergence has gradually declined. this issue has steadily been in our focus. in 2005, two years before romania ’ s eu accession, the shift to a flexible inflation targeting strategy and redenomination of the local currency brought about more discipline in communication and transparency. thus, regular media briefings ( almost every six weeks ), more specialised publications, as well as educational materials, conferences and seminars, livestreams and online tools, dedicated outreach projects which put at good use our territorial network, increased social media presence with tweeting, videos, tutorials and educational games or blogging ( actually, we were among the pioneers in blogging ) became part of the national bank of romania ’ s standard communication practice. the diversification of instruments and audiences came in swiftly. some steps came only recently ( 2016 ) – amid fears of misleading or misunderstanding by the general public that was yet to grasp the very essence of the banking and financial business, not to mention central bank activities –, such as publishing the summary of accounts of monetary policy meetings and the pay thresholds or even regular parliamentary presence. as romania ’ s financial literacy is the lowest among eu member states, the national bank of romania has devoted special energy to promoting financial knowledge across the country via educational projects in cooperation with the ministry of education, universities, academia or other authorities. as regards the forward guidance, i have to say it was not among the preferred options given the specifics of monetary transmission mechanism in romania, where the struggle was to cope with high currency substitution amid harsh transition from a controlled economy to functional markets and with large capital inflows on the eve of eu accession. our policy statements such as the inflation report, the financial stability report, the annual report, besides our regular briefings, conferences or interviews have always offered clear perspectives. nevertheless, as negative inflation numbers, short lived in our case, popped up, i believe it is important to deepen our understanding and address the causes of the public misperceptions regarding the divergence between actual inflation and that perceived by the public in order to build and strengthen confidence. 3 / 5 bis central bankers'speeches with inflation tamed in the single - digit zone and the romanian leu fully convertible, the national bank of romania ’ s increased transparency helped to boost the positive perception, strengthening our reputation. on the flipside however, oversized