“Credibility and trust are essential elements for monetary policy to be effective” - Governor Gabriel Makhlouf

26 February 2020 Press Release

Central Bank of Ireland

  • The ECB’s strategy review allows us to step back from the day-to-day conduct of monetary policy and reflect on the bigger picture
  • To achieve our objectives central banks need to communicate effectively with both the public and financial markets
  • Transparency, honesty and engagement help to build credibility, effectiveness and trust, and to set expectations, supporting the delivery of policy

At the German Institute for Economic Research (DIW Berlin) today Governor Makhlouf spoke about the ECB Strategy Review 2020 of monetary policy.  He said that “Such a review is good practice. Since the economy evolves and develops over time, so too do the challenges for economic policy more broadly and for monetary policy. Taking a step back from the day-to-day conduct of policy to reflect on the bigger picture allows us to ensure that our approach remains fit for purpose.

“We can and should periodically question the assumptions underlying our decision-making”, which include the meaning of price stability, the measure of inflation and communications.

“Credibility and trust are essential elements for monetary policy to be effective”, said Governor Makhlouf.  He added that for this to be achieved, the public must understand the mission of central banks, recognise its importance, and trust in their commitment to delivering it.  He said: “communication has shifted from being the medium by which monetary policy decisions are explained to the public, to being a monetary policy instrument in itself. This makes trust, credibility, and effectiveness even more important.”  The Governor said: “A central bank’s communication is inevitably placed in the context of existing narratives.… Narratives are now created quickly and change rapidly. Moreover, where there is no narrative the vacuum is quickly filled, not necessarily with accurate facts.”

Since 2003, the Governing Council has interpreted its price stability mandate as inflation of ‘close to, but below, 2%’.  Governor Makhlouf said “it seems that there continues to be uncertainty about exactly what ‘close to, but below’ means. Overall, it is perhaps understandable that the public, and even markets, may be confused as to what our inflation aim is.”

He said that “Having a target that everyone understands and believes in is ultimately a question of communication. Various options for the interpretation of price stability will be considered in the review.  It has been argued that since central banks are unlikely to hit a point target on a regular basis, having one makes it harder to explain policy to the public and that a range, with or without a focal point, may be more realistic and therefore provide the central bank with more credibility."

At the upcoming ECB ‘listening events’, which will take place in every euro area country as part of the review, the Governor said “we can learn insights on the operation of the economy for different groups of people, and also how we can communicate better with them.”


The ECB launched a strategy review in January 2020. The aim is to make sure its monetary policy strategy is fit for purpose, both today and in the future.  The strategy review covers all aspects of monetary policy, within the framework of the ECB’s mandate which is to maintain price stability. The review will be based on thorough analysis and take an open-minded approach.

The Central Bank of Ireland’s listening events will be announced in March.