Jansson: Independent central bank guidance vital in turbulent times

Riksbank Deputy Governor Per Jansson emphasized the critical need for central banks to clearly communicate and justify their monetary policy decisions, asserting that this transparency is fundamental for policy effectiveness and predictability.

He observed a recent reluctance among several central banks to fully utilize forward guidance, a tool designed to inform economic agents about future policy intentions under various circumstances.

This hesitancy, Jansson suggested, might stem from challenging experiences during the global surge in inflation or from the increased difficulty in producing accurate forecasts in an increasingly uncertain global environment.

He expressed concern that such a retreat from forward guidance, if it were to become a lasting phenomenon, would be detrimental, arguing that in a more turbulent world, the importance of transparency and clear forward guidance is amplified, not diminished.

Jansson highlighted that central banks are delegated their task by democratically elected politicians: to maintain low and stable inflation and a balanced real economy.

This mandate is fulfilled by independently deciding the policy rate.

He expressed concern that central banks might withhold forward guidance if they fear their analyses are politically inconvenient, which he described as very worrying.

Jansson argued that a central bank would struggle to perform its duties effectively if it paid too much attention to political considerations or 'tiptoed around' to avoid annoying politicians, ultimately jeopardizing its independence.

"To my knowledge, there is no example of any economy performing better when central bank independence has been reduced and monetary policy has been politicised.

However, there are many examples to the contrary," he stated.