15 April 2020 Blog

Governor Gabriel Makhlouf - We need to explain our decisions, set out the context in which they're being made

Central banks need to communicate. Back in February, I spoke on the subject of central bank communications and its importance to doing our job effectively. We need to explain our decisions, set out the context in which they’re being made, and help the public understand why we’re making them and what we’re aiming to achieve. Good communication matters and during a crisis it matters more than ever. I believe this blog will help with that.

The plan is for occasional posts setting out how we at the Central Bank are making sense of the pandemic and our understanding of its economic impact. I also hope to use the blog to help explain some of my own thinking, and to discuss other, non-pandemic-related, issues.

But, inevitably, Covid-19, and our response to it, will be the main theme for the next few weeks. To paraphrase the famous opening line from Anna Karenina, all financial crises are alike but an economic crisis is unique in its own fashion. Certainly this economic crisis has no precedent in modern history. In fact, it may have no precedent in known history: I have yet to find examples of economies voluntarily closing down in the way so much of the world has chosen to. Earthquakes and other natural disasters stop economic activity but they tend to have a localised impact and, of course, they are not voluntary. And wars tend to change the focus of economic activity rather than stop it entirely.

This economic crisis has been caused by the necessary response to a public health emergency. The measures taken to contain Covid-19 – and ensure that our health systems are not overwhelmed – have brought economies worldwide to a near standstill and triggered an extremely severe economic shock.

Governments and policymakers across the world have taken action to support the economy through the shock. Fiscal authorities have provided income support for households, increased the resources available to the health sector and provided support for businesses. Central banks and financial regulators have taken action to maintain liquidity in the financial system and ensure the continued flow of credit from banks to support households and firms. Unlike 2008/9, this crisis is not about the failure of the financial system.

The Central Bank of Ireland’s mission is to safeguard monetary and financial stability and ensure that the financial system operates in the best interests of consumers and the wider economy. (In the words of our founding legislation, the Central Bank’s “constant and predominant aim shall be the welfare of the people as a whole”.) We are part of the European System of Central Banks and also part of a network of European regulators. We work with them, and counterparts across the world, to protect consumers, households and firms.

This is an anxious and uncertain time for many people across the country and the world. Our focus has to be on supporting the public health response. But we also need to think about how we recover from the economic shock, and how the financial system supports the recovery, when it comes. With our colleagues in Europe, it is our job to make sure it does so. Over the next few weeks, this blog will be about how we are aiming to do that.

Gabriel Makhlouf

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