Monetary Policy Target Audience: Expanding the Reach Through Tailored

Form and Content

July 2013

A Presentation made at the IMF –East AFRITAC Workshop on Central Bank Communication Mount Meru Hotel, Arusha Tanzania

By Kelvin Kizito Kiyingi

OutlineWhere 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

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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.

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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%

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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

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Communication helps to anchor expectations, to influence perceptions

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.

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Monetary Policy Communication Functions

Enhance effectiveness of Monetary Policy decisions

Build better understanding amongst Central Bank staff, management and board

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External Communications

Internal Communications

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.

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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

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Form & Content : The MediaPublish 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

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The Media

Form & Content: External Tools

Monetary PolicyCommunication

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

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Form & Content: The Announcement

0900HRSMPC meeting. The second working day following the release of CPI by UBoS. Research Department makes a presentation with a proposal

0945HRSMPC discusses/debates the proposal

1145HRS Agreement on the Statement 1200HRS

Members of the Press Arrive

1245HRSMore detailed media engagement by Executive Director Research

1215HRS Press Briefing: Reading the Monetary Policy Statement; Announcing the Central Bank Rate. Q & A

1600HRS Invite the press the day

before

Form & Content: Purpose of Monetary Policy Statement

Inform the target audience of the decisionExplain to them the decision is consistent with the

monetary policy objective of the Central BankDistribution: Verbatim in newspapers, Bank of

Uganda WebsiteFeedback & Evaluation: Monitor reaction throughout

the week right from the first day – Reuters, Bloomberg, daily newspapers, Media Enquiries, Social Media.

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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

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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.

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Form & Content: Monetary Policy Report

• Reviews prevailing situation

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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

Form & Content: Website, Social Media

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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 www.bou.or.ug

The Website Statements Reports

Form & Content: Tailored Illustrations• CBR & High Interest Rates

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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: GovernorDeputy GovernorEx. Director ResearchAsst. Dir. Communications

Temporary situationDetailed explanationPolicy 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

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.

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Form & Content: Solving Challenges

Dual Role InformingBuilding 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

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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

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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 training3. Continuous public awareness initiatives

4. Re-positioning the website5. 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.

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Way Forward: Key Guidelines

Anchoring Expectations

Recently Bank of England and European Central

Bank both adopted Forward Guidance.

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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.

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.

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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.