to anchor inflation expectations. 13 the inflation report plays a central role in the committee ’ s communication. since august 2003 the governor has fronted the regular inflation report press conference, and the mpc ’ s appearances in front of the treasury select committee has been ( loosely ) linked to the inflation report cycle. this brings me to a much debated question : how much information should a central bank provide? academics have tended to press the case for more transparency, while practicing central bankers have been more cautious, ( though much more predisposed to openness than they would have been twenty years ago ). don kohn14 argues that “ more is not necessarily always better, and at each step of the way central banks have needed to take account of the potential costs as well as the benefits of greater transparency ”. in particular it is argued that the publication of some kinds of information could make it more difficult for policymakers to do their job, with discussions of the possible path of future interest rates being seen as particularly hazardous, if they appear “ as a firmer pre commitment than they were intended to be ”. 15 arguably these should not be a first order issues for central banks with a transparent inflation targeting framework. the objectives of policy are clear, and outside commentators should have access to enough information to work out the future direction of rates for themselves. nevertheless there has been a closely related debate about how transparent an inflation targeting central bank should be about the interest rates on which its forecasts are based. an obvious reason for wanting more direct information about the ‘ preferred ’ path is to get direct evidence on the interest rate strategy. ( how quickly will rates rise? what are the advantages of a ‘ wait - and - see ’ approach? ) as mishkin puts it ‘. [ h ] aving secretive central banks is inherently undemocratic … [ b ] asic democratic principles require that the central bank be accountable for its actions : this requires that the public understands what the central bank is doing. in addition, democratic principles indicate that the preferences of policymakers need to be aligned with those of the society at large. ’ mishkin, f ( 2004 ) ‘ can central bank transparency go too far? ’ in kent, c and guttman, s ( eds. ) the future of inflation targeting reserve bank of australia. kohn, d ( 2005 ) ‘ central bank communication ’. remarks at the annual meeting of the american economic association january 2005. mishkin has sympathy for this view,

previously the case. this did not reflect a change in policy horizon – we are required to meet our 2 % target ‘ at all times ’. but it did provide useful context for interpreting the gradient of inflation forecasts at the two year horizon, and hence a clearer indication of future policy, if the economy evolves in line with the central projection. the shift to using a market rate assumption was a very modest step towards greater transparency. at a technical level, it is a non trivial task to translate any market rate yield curve into a conventional forecasting assumption which is a genuine reflection of market expectations of future official interest rates. 18 and markets are themselves uncertain about the path of future rates so we publish a fan chart for market interest rate to help quantify that uncertainty, based on options prices. there is a big difference between a conditioning assumption and a commitment, not least because there is a big gap between anyone ’ s current guess at where rates might need to go to meet the inflation target, conditional on the data available at any point in time, and where the mpc will actually take rates given the information it may have in the future. but the mpc was conscious of the risk of misinterpretation, so the transition was made gradually – with the governor reflecting on the market curve in his remarks at the february and may inflation report press conferences, and the mpc referring to the market curve in the minutes during the spring. by the time the switch was introduced in the august inflation report, mpc and markets understood the nature of the conditioning assumption, and the change itself was seen as the marginal improvement that it is. see inflation report august 2004 pp 42 - 43. bean, c ( 2004 ) ‘ some current issues in uk monetary policy ’ bank of england quarterly bulletin autumn 2004. for further details on this issue see brooke, m, cooper, n and scholtes, c ( 2000 ) ‘ inferring market interest rates from money market rates ’ bank of england quarterly bulletin november 2000. for further information and data, please see the bank of england website www. bankofengland. co. uk. chart 4. market beliefs about future interest rates – inflation report february 2005 different inflation targeting central banks have evolved their own ways of communicating. at one extreme, the governor of the reserve bank of new zealand publishes his own forecast of future interest rates – though he is the sole decision taker in that regime. and at the norges bank, staff produce material that