Bank of Jamaica

11/08/2018 | Press release | Distributed by Public on 11/08/2018 11:26

BOJ Monetary Policy and Financial Stability Communication Strategy

BANK OF JAMAICA MONETARY POLICY AND

FINANCIAL STABILITY COMMUNICATION

STRATEGY

"Sometimes, the explanation is the policy"

- Janet Yellen, Chair of the US Federal Reserve Board, 2014-2018.

1.

2.

3.

COMMUNICATION PROCESS AND OPERATIONS ................................................................. 7

3.1

Monetary Policy Spokespersons .............................................................................................. 7

3.2

Preparation of communications documents and press releases .......................................... 7

3.3

General Monetary Policy Communication ............................................................................. 7

3.4

Monetary Policy Communication Practices ........................................................................... 7

3.5

Communications Campaign to Support the Transition Period .............................................. 9

3.6

Strengthening Bank of Jamaica's Communications Function .............................................. 9

4.

FINANCIAL STABILITY COMMUNICATION ............................................................................. 10

4.1

Financial Stability Mandate .................................................................................................... 10

4.2

Financial System Stability Committee .................................................................................. 10

4.3

Objectives .................................................................................................................................. 11

4.4

Spokespersons on Financial Stability .................................................................................... 11

4.5

Strengthening Communications on Financial Stability and Macroprudential Policy ... 11

5.

KEY AUDIENCES AND METHODS OF ENGAGEMENT .......................................................... 12

6.

MEASUREMENT AND EVALUATION ......................................................................................... 13

INTRODUCTION ............................................................................................................................. 3

  • 1.1 Mandate of Bank of Jamaica ..................................................................................................... 3

  • 1.2 Bank of Jamaica Reforms .......................................................................................................... 3

  • 1.3 Objectives of the Communication Strategy ............................................................................ 3

  • 1.4 Principles of Communication ................................................................................................... 4

    MONETARY POLICY ...................................................................................................................... 4

  • 2.1 Role of Communication in Monetary Policy .......................................................................... 4

  • 2.2 The Price Stability Mandate ...................................................................................................... 5

  • 2.3 The Monetary Policy Decision-Making Process .................................................................... 6

  • 2.3.1 Who makes monetary policy decisions? ............................................................................. 6

  • 2.3.2 When are monetary policy decisions made? ...................................................................... 6

  • 2.3.3 Forecasting and Policy Assessment System ....................................................................... 6

  • 2.3.4 Monetary Policy Assessments .............................................................................................. 6

1.

INTRODUCTION

1.1 Mandate of Bank of Jamaica

In October 2018, the Government tabled in Parliament a Bill for proposed amendments to the Bank of Jamaica Act and related legislation which include revisions to the Bank's mandate to identify the maintenance of price stability and financial system stability as the Bank's principal objectives with price stability as the primary objective.

1.2 Bank of Jamaica Reforms

The proposed reforms also include:

  • - revisions to the Bank's governance structure to support the Bank's mandate, including the establishment of a monetary policy committee with responsibility for the formulation of the Bank's monetary policy;

  • - the adoption of inflation targeting and maintenance of price stability through medium-term inflation targets set by the Minister after consultation with the Governor of the Bank;

  • - provisions for the independence of the central bank coupled with enhanced accountability and transparency; and

  • - for full transparency, requirements for publication of inflation targets and communication of monetary policy decisions, including advice if inflation targets are missed, reasons for the missed targets and measures to remedy this.

In preparation for the anticipated changes to the legislative framework which are pending, the Bank has started operating under the inflation targeting framework and this communication strategy has been developed in this context. The strategy addresses the transition period and will be reviewed and updated once the legislative changes are finalised and effected.

1.3 Objectives of the Communication Strategy

The underlying objectives of the communication strategy are to raise understanding among the Bank's internal and external stakeholders and encourage stakeholder confidence in the Bank's policy initiatives and objectives. Successful implementation of this strategy will justify and validate the image of the Bank as an instrument of public good that plays a critical role in maintaining price stability (low and stable inflation) and financial system stability.

Objective 1

Low and stable inflation, which is currently reflected in the target range of 4 to 6 per cent over the medium term.

Objective 2

A stable and thriving financial system that has low levels of systemic risk and is resilient to shocks.

1.4

Principles of Communication

Effective communication allows for greater transparency of the central bank, which (i) enhances its independence, (ii) directly enhances its macroeconomic performance by eliminating distractions arising from unclear messages and (iii) directly enhances macroeconomic performance by strengthening the credibility of monetary policy.

The following principles guide the Bank's communications.

Transparent communication encompasses clarity, openness and timeliness. The Bank's communications will be clear, accurate and unambiguous and will be in formats that are easily understandable by the respective audiences. They will be open, making all relevant information available to the public for a clear understanding of past and expected future developments and the direction of policy. The communications will also be timely so that the public and other stakeholders are able to process and benefit from the information while it is of greatest relevance.

2.

MONETARY POLICY

2.1 Role of Communication in Monetary Policy

Central bank credibility plays a critical role in the conduct of monetary policy. The greater the credibility of the central bank the greater is its ability to anchor expectations and achieve its mandate. There is a strong relationship between this credibility and the effectiveness of the Bank's communication and it is therefore important that the Bank has an effective communication strategy and function. This is even more so as the Bank faces the challenge of the transition to a full-fledged inflation targeting regime. Monetary policy is forward looking, so having an impact on perceptions and expectations is as important as direct policy action.

Effective communication strategies not only depend on what type of information central banks publish but also on how this information is communicated to the general public.

The Bank is of the view that efficient communication on monetary and financial stability issues is central to the achievement of its mandate. This document therefore sets out the manner in which the Bank communicates its policies, actions and events to stakeholders. The document describes the Bank's commitment to provide the public with clear,accurate and timely information, communicated in a professional manner and in accordance with the laws regarding public information and data practices.

2.2 The Price Stability Mandate

2.2.1 Bank of Jamaica's monetary policy mandate is the maintenance of price stability, or low and stable inflation.

2.2.2 This mandate will be achieved through inflation targeting. The Bank's monetary policy is focused on achieving the medium-term inflation target established by the Minister of Finance and the Public Service after consultation with the Governor. The current target, set by the Minister in September 2017 after consultation with the Governor, is 4.0 to 6.0 per cent. The country's long-term ambition is to have an inflation target even closer to that of its major trading partners. The current target range is more prudent as it is consistent with Jamaica's drive to encourage faster economic growth while maintaining the stable and competitive macroeconomic environment to make that growth sustainable.

2.2.3 The inflation target is set as a band or range and not as a point due, in part, to Jamaica's susceptibility to exogenous shocks. Additionally, a band allows the central bank to promote economic growth by accommodating inflation variability without losing credibility.

2.2.4 For the central bank to formally adopt price stability as its primary objective and use the interest rate lever as the Bank's main policy tool, there are several prerequisites.

Since high public debt and fiscal dominance undermine the effectiveness of any central bank, fiscal sustainability is critical to give monetary policy the flexibility required for it to be effective. Another prerequisite is a flexible exchange rate, which facilitates the establishment of consumer price inflation as the nominal anchor for monetary policy and enables the central bank to manage internal and external shocks better.

Jamaica has made significant progress on both fronts in the short space of a few years under the economic reform programme. Going forward, fiscal discipline will be further entrenched by the Fiscal Responsibility Law, which targets a debt-to-GDP ratio of 60 percent by the end of 2025/26, enabling the country to embrace full-fledged inflation targeting with confidence. Meanwhile, the Government has maintained a consistent public commitment to a flexible exchange rate and, with the recent reforms to the market such as the introduction of the Bank of Jamaica Foreign Exchange Intervention and Trading Tool (B-FXITT), the exchange rate has displayed a significantly greater degree of flexibility.