Popular folklore sometimes makes central banks out to be temples of policymaking, which seldom let their secrets out. It doesn’t help that some central bankers, pretending they’re Templar high priests, add to this aura. Take former US Fed chief Alan Greenspan, called a “maestro” and “oracle” for, what then seemed, his prescient commandeering of the US economy. Prone to cryptic talk, he once told an audience: “I guess I should warn you. If I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”
The world now knows the Fed’s commandeering was, by no means, prescient—a dark stain on its institutional credibility. It’s refreshing, then, to hear the current Fed chairman speak with frankness and humility.
Ben Bernanke admitted in a Friday speech at Jackson Hole, Wyoming (where the Fed retreats every year for some reflection) that he and his peers didn’t foresee the way the US economy has started stalling. “The pace of that growth”, or that of individual factors such as consumer spending, hasn’t been what “we expected”, he said.
In clear terms, he laid out that the challenges besetting Western central bankers at this juncture are actually unclear: “Macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments.” Bernanke has displayed this candour before. Last month, he warned of “unusual uncertainty” in the economy.
Such candour points to the fact that central bankers aren’t maestros or oracles: “Central bankers alone can’t solve the world’s problems,” Bernanke said. But it also shows—perhaps especially in the face of such uncertainty—that a clear communication strategy helps. In many cases, policy thinking should be transparent to markets.
This is a key challenge for the Reserve Bank of India (RBI), which has come under fire before for its lack of transparency. To his credit, governor D. Subbarao last year declared better communication as one of his goals. And RBI has made key advances. Earlier this year, it created a new precedent by inviting analysts and journalists for a conference call after every policy statement or review. Its language in statements, too, is getting clearer and crisper.
For a central bank overseeing an emerging economy such as India—one that’s facing new uncertainties such as capital flows—RBI can further aid its credibility by ensuring clarity.
Is policy transparency useful? Tell us at email@example.com