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Dear MARIA, We just published a new blog—read the full text below. Rethinking Central Bank Communication in an Uncertain World (Credit: simoncarter/iStock by Getty Images)  By Tobias Adrian  In a world of frequent and faster-moving shocks, where uncertainty is high and markets react instantly, central banks face a fundamental communications challenge: how to help the public understand monetary policy objectives while explaining how policy may evolve as economic conditions change. In this regard, explaining the policy framework, the reaction function of the central bank, and the way in which economic uncertainty and risks play into alternative scenarios have become the foundation of the central banker’s communications playbook.   As central banks adapt their policy frameworks and tools to a more uncertain and shock-prone world, it is only natural that they are also reassessing how best to communicate policy frameworks and talk about the conjuncture. A new IMF note explores these questions and sets out principles for effective monetary policy communication.   Perils of commitment   During the low-inflation era that followed the global financial crisis, communication was dominated by forward guidance, centered on precommitting to a likely future path of the policy rates. Such an approach can be effective when policy is stuck at the lower bound and inflation expectations are drifting down. But commitments may become costly when circumstances change. Supply shocks, inflation surprises, or abrupt shifts in the balance of risks may require policymakers to adjust course.   As a result, central bank communication has shifted toward explaining how policy will respond as economic conditions evolve and new data become available.   Understanding reaction functions   A central task has therefore been communicating the reaction function: how policymakers interpret incoming data, weigh risks, and navigate tradeoffs between key central bank objectives. The strength of underlying inflation, the evolution of inflation expectations, and the nature of monetary policy transmission are the key inputs to the reaction function. “Data dependence” has featured prominently: central banks emphasize what data matter, how data shape decisions, and what future contingencies may mean. The goal is to help the public understand the logic that guides a central bank’s decision-making.   Explaining Risks and Uncertainty   Central banks convey their views on the economic outlook through forecasts and scenarios. This is crucial because policy decisions are based on where the macroeconomy is expected to go.   But forecasts are not promises. In a shock-prone world, they are subject to tremendous uncertainty. If forecasts are communicated too precisely, or policy-rate projections are interpreted as commitments, revisions can be misinterpreted as policy reversals. In this context, scenarios can help illustrate how policy might respond under different economic outcomes, while reinforcing that future decisions will depend on incoming data and evolving conditions.   Communication for a shock-prone world   Forecasts should be accompanied by a clear explanation of risks. Effectively communicating the reaction function can help the public better understand how policy may respond under alternative economic outcomes. By contrast, rate-path commitments should be exceptional and conditional, with clear escape clauses so that any conditional promise is clearly subordinate to the price-stability mandate.   More isn’t always better   Clear communication can anchor expectations and support accountability. But more communication is not always better. Social media, automated news analysis, and artificial intelligence mean that central bank communications are parsed in real time. Too much detail can lead markets to focus excessively on decoding the central bank rather than assessing fundamentals. Hence conditionality relative to the evolving outlook is foundational.   Volatility’s value   The goal of central bank communication is not to eliminate volatility. Rather, it is to reduce uncertainty about how the central bank will respond, limiting surprises around policy decisions.   Volatility is not, in and of itself, undesirable. When asset prices move in response to new information about incoming macroeconomic data that shape the inflation and growth outlook, markets are performing their essential price-discovery function. Such volatility is fostering the information content of expectations and can in turn provide information to policymakers.   Speaking with humility   Successful communication therefore depends on fostering a better understanding of the policy framework. That means being clear about central bank objectives, the reaction function, and forecasts. Given the high degree of uncertainty globally, central banks need to be explicit about risks, with the goal of reflecting the degree of underlying macroeconomic uncertainty accurately. Read the blog Recent blogs Well-Designed Regulatory and Institutional Reforms Can Boost Economic Growth Many G20 economies face constraints from excessive labor, product-market, or consumer regulations, an IMF survey shows New Economics Books Explore Trade, Finance, and a Changing World Order Authors probe complex issues to shed light on global economic challenges Argentina Looks Forward After restoring stability, Argentina needs to turn hard-won gains into lasting prosperity Thank you again for your interest in the IMF Blog. Please write to us directly and let us know your thoughts. We would love to hear from you.   Jeff Kearns  Managing Editor | IMF Blog  jkearns@IMF.org Stay connected with the International Monetary Fund:       This email was sent to politikimx@gmail.com on behalf of: International Monetary Fund 1900 Pennsylvania Ave NW · Washington, DC · 20431

Dear MARIA,   In today's edition, we highlight: Central bank communication   Growth in G20 countries Nepal's economy The September issue of Finance & Development

CENTRAL BANKING  Rethinking Central Bank Communication In a world of frequent and faster-moving shocks, central banks face a tricky communications challenge: to help the public understand both their monetary-policy objectives and how policy may evolve as economic conditions change.   “As central banks adapt their policy frameworks and tools to a more uncertain and shock-prone world, it is only natural that they are also reassessing how best to communicate policy frameworks and talk about the conjuncture,” writes Tobias Adrian, the IMF’s Financial Counselor, in a new blog.   Drawing on a new IMF note, Adrian sets out principles for effective monetary-policy communication. He argues that central banks should explain their policy framework and reaction function—how they interpret incoming data, weigh risks, and navigate tradeoffs between their objectives—rather than pre-commit to a likely future path for policy rates.   Forecasts and scenarios remain important, but forecasts are not promises. Clear communication about risks and the conditional nature of future decisions can help the public understand how policy may respond under alternative economic outcomes, while limiting surprises around policy decisions. Read the blog GROUP OF TWENTY Smart Regulations Could Lift G20 Growth As G20 finance ministers and central bank governors gather in Asheville, North Carolina, next week, they will confront a weak medium-term outlook. Annual growth in the G20 is projected at 3 percent in 2031—near its lowest medium-term projection since the global financial crisis—write Nicolas Fernandez-Arias, Marwa Ibrahim, and Colombe Ladreit in a new IMF blog.   Drawing on a survey of IMF G20 country teams (as part of a new IMF report and accompanying dashboard), the authors highlight a range of policy-related impediments to growth. Excessive labor-market, product-market, and consumer-protection regulations constrain growth in around half of advanced economies and three quarters of emerging markets.   But, in some areas, economies also have too little regulation, as well as other impediments to growth. In advanced economies, inadequate policies for demographic challenges and restrictions on housing and land use stand out. In emerging markets, shallow capital markets, weak public-investment management, and shortcomings in governance and institutions are more prominent.   The answer is not indiscriminate deregulation, the authors argue, but better calibration of regulation. Well-designed rules and institutional frameworks can reduce impediments to investment and growth, including by helping economies capture productivity gains from new technologies while managing the risks associated with them. Read the blog ASIA Nepal Stabilizes Its Economy   Nepal has secured macroeconomic stability after years of shocks by stepping up fundamental reforms. International reserves have risen from about nine months of import cover to more than a year, providing a valuable buffer against external shocks.   This progress was achieved ahead of the devastating flash floods that struck Nepal this week, bringing tragic human costs and severe damage to communities and infrastructure. It is a painful reminder of the country’s continuing exposure to shocks—and of the importance of resilient institutions and sustained reform.   Further efforts will be needed to boost private investment and job creation. “Stability is the foundation for growth, not the finish line,” says Sarwat Jahan, IMF mission chief for Nepal. “To keep addressing governance gaps and rebuild public trust, the authorities have begun an IMF Governance and Corruption Diagnostic.” Nepal recently completed its first IMF-supported arrangement in nearly two decades. Read the Country Focus story ASIA Finance & Development's September Issue The latest issue of Finance & Development, available September 1, explores how Asia can remain a driving force of global growth, trade, and innovation, as populations age and global shocks become more frequent.   For a sneak peek at the issue, read about the region’s changing economic development in Rethinking Development, by Gordon Hanson, Dani Rodrik, and Rohan Sandhu. Read F&D

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Jacqueline Deslauriers Senior Editor | IMF Weekend Read  jdeslauriers@imf.org

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