jean - pierre roth : no news, good news - transparency and communication in monetary policy address by mr jean - pierre roth, chairman of the governing board of the swiss national bank and chairman of the board of directors of the bank for international settlements, at the annual meeting of the european business press, zurich, 16 june 2006. this paper was prepared with the support of martin brown, international research and technical assistance section, swiss national bank. * * * introductory remarks ladies and gentlemen, it is a great pleasure to address you here, on the occasion of your annual meeting. i would like to take this unique opportunity to talk about an issue which, in recent years, has strongly affected my job as a central bank's president and your work as journalists : transparency and communication in monetary policy. over the past two decades, central banks, especially in europe, have undoubtedly be - come more transparent. central bankers now regularly communicate their assessment of inflationary pressures to the public and go to great lengths to explain their monetary policy stance. gone are the days when central banks argued that secrecy was an essential ingredient of an effective monetary policy. as a consequence, monetary policy decisions are no longer taken at irregular intervals or at weekends, in order to surprise markets on monday mornings. this, of course, is fortunate for business journalists. you no longer need to spend your weekends worrying that you might have to suddenly start writing about a surprise policy intervention. as you may have guessed though, the main reason for central bank transparency is not to make your weekends more relaxing. central bankers today pursue a policy of broad information because we believe that transparency helps us fulfil our mandate. we are convinced that monetary policy is most effective and least disruptive if it is predictable : no news on monetary policy is good news. in the following, i would like to discuss why, today, central bankers think transparency is crucial for a successful monetary policy and how the swiss national bank attempts to achieve transparency in practice. i shall then debate the limitations of what transparency finally, i would like to reflect upon how transparency in monetary policy may affect the relationship between you, the journalists, and us, the central bankers. 1. the case for transparency at the swiss national bank we see three main reasons to be transparent about our monetary policy. the first reason is that we count on transparency to enhance the effectiveness of our monetary policy. in the public eye, central banks may be viewed as almighty. the plain reality is, however, that our open market

) and by corporate strategies. in this regard, the role of the so - called national innovation system should be stressed, i. e. the network of public and private sector institutions and the interaction mechanisms behind the production, use, diffusion, absorption and exploitation of new knowledge and technologies by a company or group of companies. empirical evidence shows that r & d expenditure, the level and type of education and the articulation between the educational and professional training subsystems are responsible for the position of countries within the international division of labour and, in particular, for the specialisation pattern ( intersectoral specialisation, or as an alternative, intrasectoral vertical specialisation ). on the one hand, the articulation between the three subsystems ( research, education and professional training ) should be enhanced. on the other hand, the articulation between the national innovation system and corporate needs, in particular in the tradable goods sector, should also be improved. finally, i would like to point out the critical importance of maintaining and strengthening the stability of the financial system. this system plays a fundamental role in the functioning of the portuguese economy and, in particular, in an efficient allocation of internal and external resources, channelling them to the sectors and economic agents with funding needs. the portuguese banking system is solid. it was not exposed to the sub - prime crisis or to the speculative bubble in the real estate sector. own funds are adequate given the current level of balance sheet risk : the tier 1 capital ratio stood at 9 % in 2010 and the core tier 1 capital ratio at 8. 2 %. obviously, the banking system suffered from the impact of the international crisis and the decline in growth. as expected, between 2007 and 2010, the total ratio of non - performing loans increased from 1. 5 % to 3. 3 % and the return on equity decreased from 14. 63 % in 2007, to 7. 37 % in 2010, after having dropped to 3. 44 % in 2008. however, the portuguese financial system shows some specificities that should be addressed. first, as a reflection of the above - mentioned imbalance between domestic savings and domestic borrowing requirements – resulting from the development model of the portuguese economy in the past few years – the transformation ratio of deposits into loans stands at 1. 44 for the portuguese financial system as a whole. due to this fact, there is a significant dependence on external financing. this explains the reason why the portuguese banking system became heavily exposed to