CNB launches Monetary Policy Report

The Czech National Bank is this year launching a Monetary Policy Report to replace the quarterly Inflation Report. What was behind the creation of the new publication and how does it differ from its predecessor?

In switching to the Monetary Policy Report, the CNB is taking its place alongside the world’s leading central banks, as, like them, it understands the importance of this type of document in the communication mix used by contemporary monetary policymakers. The CNB is following the lead of, for example, Sweden’s Riksbank, which has been publishing a Monetary Policy Report since 2007, and the Bank of England, which started to issue its publication of the same name in 2019.

The monetary policy regime is unchanged

As the editors of the CNB’s Monetary Policy Report, we would like to introduce you to our new publication, tell you what it contains, and describe how it differs from its predecessor, the Inflation Report. We also want to share the experience and knowledge that we – together with the Monetary Department implementation team – gained along the way. But before revealing more, we’d first like to assure you that the monetary policy regime is not changing. The Czech National Bank will continue to pursue its mandate of maintaining price stability by targeting inflation, a regime which has been in place in the Czech Republic since 1998 and has proved its worth in turbulent times.

From evolution to revolution

Although we have been continually refining the Inflation Report since it was first issued at the start of the inflation targeting era, the Monetary Department decided in 2016 that evolution was no longer enough. Public interest in monetary policy is growing constantly, and the CNB wanted to be even more open and communicative about how it sees the current situation and its impacts on monetary policy decisions. The change of name and above all content reflects the simple fact that members of the public – and especially specialists in the field – are far more interested in how monetary policy will react to inflation than in a simple factual account of past or future economic developments.

Right at the start of the Monetary Department’s discussion on the change, we realised that the transition to the Monetary Policy Report could not be rushed. Nonetheless, we wanted to take the first steps as soon as possible, so in 2017 we gave the Inflation Report a facelift, reducing its length, simplifying its structure and putting a greater emphasis on the forecast. Even then, however, we in the Monetary Department were intent on going much further.

We drew inspiration not only from internal discussions, but also from the international community. In 2018, we were given a big boost by an international seminar that we organised for editors of monetary policy documents at inflation-targeting central banks. This event confirmed our belief that we were heading in the right direction. Consultations were also held with the CNB Bank Board, which supported the entire process. Together, we succeeded in focusing the content of the publication on areas and issues that are relevant to the final interest rate decision.

Telling the economic story

Let’s now look at the specific changes. In the Monetary Policy Report we present a comprehensive and coherent story about the future path of the Czech economy as discussed and approved by the Bank Board. Emphasis is placed on key topics shaping the current economic story and forecast, topics which we therefore expand upon. Conversely, areas where nothing radical is currently happening, or which are not of key importance to the forecast at the moment, take a back seat. Among other things, this has allowed us to shorten the document. However, this was not the main motive for the changes.

The structure of the Monetary Policy Report – in the form of numbered sections (Economic developments abroad, The real economy and the labour market, Inflation and Monetary policy) – should give readers more insight into the considerations of the Monetary Department when it was preparing the forecast and those of the Bank Board when it was deciding on monetary policy. Besides a description of the forecast, which readers were already used to seeing in the Inflation Report, we now more openly discuss the risks and uncertainties that the forecast is exposed to. This is reflected in other forecast scenarios, monetary policy simulations and considerations. These considerations, which the Monetary Department has been preparing for the Bank Board in the form of an internal Monetary Policy Recommendation and which have previously not been made available to the public until six years later, are now an integral part of the Report. This is another step in the ongoing process of enhancing the CNB’s monetary policy transparency.

The Report will be accompanied from now on by a stand-alone, data-driven document called the Chartbook containing all the charts that Inflation Report users are familiar with. These are joined by charts that were previously presented only in the internal Monetary Policy Recommendation. Unlike the Monetary Policy Report, which will change flexibly to reflect current issues and whose flexibility will be apparent not only in the text, but also in the choice of charts, the Chartbook will be a fixed source of information. We have divided our regular overview of macroeconomic, financial and monetary indicators into eight thematic sections, the introductions to which summarise the changes compared to the previous forecast.

Highlights

To conclude, as editors we would like to draw your attention to two very interesting parts of the Report. The first is an editorial – a foreword written by the Governor – presenting the fresh views of the CNB’s top representative on the latest events. This is followed by an introduction penned by the Executive Director of the Monetary Department, Petr Král, who summarises the Report in a style that is easy to read and understand. It will also be published separately as a cnBlog post on the morning following each monetary policy meeting.

We believe our new Monetary Policy Report is something to look forward to. On behalf of the Monetary Department, we hope you find it both useful and inspiring.