Panel discussion on the experiences of central banks' communication

“Emerging Market Central Banking and Communication: the Great Catchup” was the title of a study by Piroska Nagy Mohácsi, Tatiana Evdokimova, Olga Ponomarenko and Elina Ribakova published in the March 2024 issue of the Financial and Economic Review. In connection with the article, the Hungarian Economic Association (HEA) and the Financial and Economic Review (FER) organised an English-language panel discussion on Thursday, 4 April 2024. The event was broadcast live on HEA’s YouTube channel.

In his welcoming speech, Barnabás Virág, Deputy Governor of the Magyar Nemzeti Bank (MNB), the Central Bank of Hungary and the Chairman of the Editorial Board of the Financial and Economic Review said that the MNB is celebrating its 100th anniversary this year, and then presented the March issue, highlighting the study on central bank communication, which was the theme of the event. The MNB introduced the inflation targeting system in 2001. The situation has changed a lot since then, especially after the great financial crisis, and the role of communication, appropriate narratives and forward-looking guidance has increased. With current models, it was difficult to predict the peak of the last inflationary period. That is why the study, which presents the topic in a broad international comparison, is very relevant to the MNB.

This was followed by a short introductory presentation by one of the authors, Piroska Nagy Mohácsi, the Visiting Professor at the London School of Economics and Political Science.

She highlighted that they compared the policy actions and communications of 22 emerging market central banks with the Fed and the ECB over the past two decades, using sentiment analysis and advanced machine learning techniques.

The key messages were the following:

• Emerging Market central banks made a great progress in terms of transparency and a few of them like Czech Republic, Chile, Hungary, South Korea and South Africa closed the gap to advance economies.
• The readability of statements of Emerging Market central banks became clearer, though Fed and ECB have recently also improved this.
• The Central-East European region plays a leading role in this field.
• She emphasized that central banks with multiple mandates must have a very clear communication strategy to determine what their priorities are when their multiple policy objectives may conflict with each other.
• The differences between the first-round and second-round effects of inflation blur when inflation rises rapidly. It is important to monitor the supply-side factors behind the supply-demand imbalance.
• It is not a good idea to change the central bank's goal in times of stress.
• The combination of fiscal-monetary policy plays a central role in the macroeconomics, therefore its joint review and communication would promote the transparency, credibility and accountability of monetary and fiscal authorities.

Among the authors, Piroska Mohácsi Mohácsi, and Csaba Balogh, Director of the MNB, and István Ábel, Professor at the Budapest Business University, participated in the panel discussion organised on the topic.

The study also highlights that those central banks that introduced the inflation target system sooner communicate better. Inflation essentially reflects an imbalance in supply and demand, a lesson that emerging markets have learned well. One of the most important tasks of central banks is to anchor inflation expectations. It is a new phenomenon that the increase in the profitability and mark-ups of companies can contribute to the rise in inflation.

In its communication, the MNB emphasizes that competition is very important because it can also contribute to the disinflation process. Improving the financial literacy of the population can support monetary policy, because it was seen that the transmission of interest rates was very weak. Fiscal policy can also play a decisive role in the development of inflation, e.g. in case of excessive deficit.

As part of crisis management, it was also important that the Fed and the ECB (partly also the Chinese central bank) entered into swap agreements with the central banks of emerging countries.

In conclusion, it was highlighted that communication is an integral part of monetary policy. The author's two final messages were that communication is the "policy" itself, and that the community of central banks has become more homogeneous as the central banks of several emerging markets catch up.

The report was compiled by Ferenc Tóth (MNB)