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Key Message: Effective Communication does not guarantee effective monetary policy, but effective monetary policy cannot be guaranteed without effective communication.
A Presentation made at the IMF –East AFRITAC Workshop on Central Bank Communication Mount Meru Hotel, Arusha Tanzania.

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  • Topic
  • Tools for external monetary policy communication
  • BoU staff play an ‘ambassadorial’ role
  • Monetary_Policy_Target_Audience_Expanding_Reach_through_Tailored_Form_Content

    1. 1. Monetary Policy Target Audience: Expanding the Reach Through Tailored Form and Content A Presentation made at the IMF –East AFRITAC Workshop on Central Bank Communication Mount Meru Hotel, Arusha Tanzania By Kelvin Kizito Kiyingi, Asst. Director , Communications Department July 2013
    2. 2. Outline Where we are in terms of Monetary Policy Communication.  New Monetary Policy Framework Role of Communication in the Monetary Policy Framework Monetary Policy Decision Making Process Form and Content of Monetary Policy Communication An Illustration of Expanding Reach Through Forma and Content Challenges Conclusion 7/23/2013 2
    3. 3. New Monetary Policy Framework In July 2011, BoU introduced Inflation Targeting lite (ITL) monetary policy framework, replacing monetary aggregate targeting ITL allows more discretion on the part of policy makers than monetary aggregate targeting Therefore, credibility and transparency play important roles Sensitization workshops/seminars for key stakeholders Use of the policy rate, the Central Bank Rate (CBR). This is visible in a way monetary targets were not. Objective of monetary policy. Primary objective: medium- term annual core inflation of 5%. Secondary: stabilise output as close as possible to the equilibrium level of output. 7/23/2013 3
    4. 4. Communication: crucial under ITL • Under ITL private sector expectations matter greatly • It is very important to influence behaviour. • If people have wrong expectations, for example, there could be costs in terms of output; consequences for output...20% Vs. 5% 7/23/2013 4
    5. 5. Communication: Crucial Under ITL • Interest rates alone are not enough in controlling inflation • The key to effectiveness lies influencing private sector expectations •nough in controlling inflation •The key to effectiveness lies influencing private sector expectations Framework • People Should understand Central Bank Communication • Clarity not ambiguity • Avoid giving forecasts on exchange rates because it can trigger speculation Communication • Private sector expectations are as close to the Central Bank’s target and outturn as possible • Expectations influence perception & behaviour Expectations 7/23/2013 5 Communication helps to anchor expectations, to influence perceptions
    6. 6. The shift to IT-Lite • Why the shift to IT-Lite. • How BoU communicated the shift. Key to success: multi-pronged approach: Governor, Deputy Governor, EDR. • The time we shifted, is the time we experienced high shocks. • They thought we were controlling interest rates by raising the CBR. We introduced a policy rate to influence interest rates. People did not understand. Thought we were controlling interest rates. 7/23/2013 6
    7. 7. Monetary Policy Communication Functions Enhance effectiveness of Monetary Policy decisions Build better understanding amongst Central Bank staff, management and board 7/23/2013 7 External Communications Internal Communications
    8. 8. Monetary Policy Target Audience Internal:  Board of Directors: Governor, Deputy Director, Other members of the Board of Directors  Management: Executive Directors, Directors, Deputy Directors, Assistant Directors  All members of staff 7/23/2013 8
    9. 9. Monetary Policy Target Audience External:  Primary Audience: Economic and commercial decision makers, financial markets, CEO’s of Commercial Banks, financial companies, prospective institutional investors, business community  Secondary Audience: Informed members of the public and opinion leaders e.g academics, parliamentarians, media commentators. 7/23/2013 9
    10. 10. Form & Content: Target Audience  Dilemma: If people are going to understand economic concepts. Limits the type of people you can communicate to  We try to focus on a relatively small section of society that understands economics in a technical way.  If we want to communicate monetary policy in a meaningful manner we need to confine ourselves to a narrow society .  Other forms of engagement, including financial inclusion initiatives.  Media is key: We use the media to communicate to a broader public 7/23/2013 10
    11. 11. Form & Content : The Media Publish Monetary Policy Statement verbatim in key newspapers Place articles in the press Talk shows both on Radio & Television Press interviews With ITL, media devotees pay more attention to monetary policy CBR “visible” in a way monetary aggregates are not Audiences familiar with interest rates so CBR attracts more attention 7/23/2013 11 The Media
    12. 12. Form & Content: External Tools Monetary Policy Communication Website & Social Media Media Training/Press conferences /Articles Speeches by Governor & Deputy Governor Monetary Policy Reports Monthly UBA meetings Monetary Policy Statements Radio/TV Talk Shows 7/23/2013 12
    13. 13. Form & Content: Internal Tools Intranet • Statements • Rates E-mails • Interpretations • Information Exchanges • Knowledge Sharing • Internal Forums 7/23/2013 13
    14. 14. Form & Content: The Announcement 0900 MPC meeting. The second working day following the release of CPI by UBoS. Research Department makes a presentation with a proposal 0945 MPC discusses/debates the proposal 1145 Agrees on the Statement 1200 Members of the Press Arrive 1245 More detailed media engagement by Executive Director Research 1215 Press Briefing: Reading the Monetary Policy Statement; Announcing the Central Bank Rate. Q & A 1600HRS Invite the press the day before 7/23/2013 14
    15. 15. Form & Content: Purpose of Monetary Policy Statement Inform the target audience of the decision Explain to them the decision is consistent with the monetary policy objective of the Central Bank Distribution: Verbatim in newspapers, Bank of Uganda Website Feedback & Evaluation: Monitor reaction throughout the week right from the first day – Reuters, Bloomberg, daily newspapers, Media Enquiries, Social Media. 7/23/2013 15
    16. 16. Form & Content: Monetary Policy Statement Structure Content Section 1s1st Developments of Inflation Inflation Outcome Undying, Core, Underlying, Core, Food Crop 2nd Output growth Credit aggregates Global and Domestic, State of aggregate demand: Stimulate or Curtail 3rd Basis for the Monetary Policy Stance Inflation and growth Outlook What i s expected in future Exchange Rate , Current Account, Balance of Payment 4th End up with the policy statement announcement Monetary Policy Stance CBR, Rediscount, Bank Rate 16
    17. 17. Form and Content: Uganda Bankers’ Meeting • Monthly Uganda Bankers’ Association meeting – usually shortly after the MPC meeting. • Chaired by the Governor • Participants: All CEO’s of commercial banks • Executive Director Research makes a detailed presentation of the Monetary Policy Report. 7/23/2013 17
    18. 18. Form & Content: Monetary Policy Report • Reviews prevailing situation 7/23/2013 18 Section Content Global Developments & Prospects Implications on domestic monetary policy Domestic developments Review performance of previous monetary policy stance Inflation developments & forecasts Policy implications Aggregate demand analysis Curtail or Stimulate Detailed analysis of economic growth forecasts Subdued, Increased Basis for new monetary policy stance Neutral, Expansive, Tight Distribution: Posted on the Bank of Uganda Website
    19. 19. Form & Content: Website, Social Media 7/23/2013 19 Most Prolific Twitter Users in Africa Bank of Uganda (765) South Africa Reserve Bank (707) Central Bank of Kenya (159) Source: Central Banking Publications , May 2013 Additional means of reaching people and directing them to The Website Statements Reports
    20. 20. Form & Content: Tailored Illustrations • CBR & High Interest Rates 7/23/2013 20 Audience Tailored Form Tailored Content Traders & Business Community Seminars Cause of high interest rates Members of Parliament Speeches /Engagements Context of inflation Professionals/Elite OP-Eds in newspapers: Governor Deputy Governor Ex. Director Research Asst. Dir. Communications Temporary situation Detailed explanation Policy Limitations Relationships among policy rates General Public Radio Talk Shows: Both Luganda & English EDR giving detailed explanations Commercial Banks Monthly UBA Meetings Discussions Media Press Conferences Regular & detailed engagements
    21. 21. Form & Content: Challenges Lack • Low levels of business journalism • Little understanding of the demand management concept; Private Investments; Gov’t Spending; Exports of • Lack of understanding of BoU’s role amidst a liberalised environment • Differentiating between monetary and fiscal policy Informed • Relationship between interest rates, exchange rate and inflation • Limited knowledge of what macroeconomic policy can and cannot do Debate • Paucity of independent institutions which can contribute to informed analysis, forecast, etc. 7/23/2013 21
    22. 22. Form & Content: Solving Challenges Dual Role Informing Building monetary policy communication capacity ITL Framework Convincing public of most likely outcome over time horizon of monetary policy Convincing public the interest decision is the best one to achieve policy target Tough Times Some want low interest rates & inflation as well as strong shilling. People have unrealistic expectations Dep. Gov wrote an article addressing this in a national daily 7/23/2013 22
    23. 23. Form & Content: Some Initiatives Annual Monetary Policy Fact Sheets: Internal and External publication for guests and for induction Broadcast press conferences live (internet, live streaming on websiteTV & radio) Public Monetary Forums Introduce Monetary Policy School / University Challenges (in use in South Africa) Record press conferences and post on website 7/23/2013 23
    24. 24. Form & Content: More Initiatives  For effective monetary policy communication, we are considering five more initiatives: 1. Use local languages more 2. Concerted and continuous media training 3. Continuous public awareness initiatives 4. Re-positioning the website 5. ITL ushered us into a new era, requiring a more complex approach to communication  We should not be afraid of debate; we should stimulate public debate. 7/23/2013 24
    25. 25. Way Forward: Key Guidelines  Anchoring Expectations Recently Bank of England and European Central Bank both adopted Forward Guidance. 7/23/2013 25 Central banks have experimented with ‘forward guidance’ – sending signals about the future path of interest rate policy more than just one decision ahead – as a way of stabilizing medium-to- longer run expectations. Michael Woodford Use of metaphors to make the communication simple, clear , understandable and effective e.g. Treatment of malaria. Audience Segmentation for effective tailoring of form and content.
    26. 26. Conclusion  The introduction of CBR, which is a visible policy rate, has done a lot to raise the profile of monetary policy in the press. 7/23/2013 26 Mark Carney Has replaced Mervyn King, as BoE Governor. Imported new communications practices. Brought advisers from Canada. Financial Times Mon July 1, 2013 Communication is integral to effectiveness and the Communications Department is now involved in a way not conceivable during the monetary aggregate regime. Effective Communication does not guarantee effective monetary policy, but effective monetary policy cannot be guaranteed without effective communication.