Bank of Korea Monetary Policy Communication: 'Monetary and Credit Policy Report' is a Core Element of Inflation Targeting

The Bank of Korea explained its communication system and the role of the 'Monetary and Credit Policy Report' to increase the transparency of monetary policy and strengthen communication with economic agents. Through a Friday lecture, the Policy Cooperation Team of the Monetary Policy Department of the Bank of Korea covered in detail the concept and major tools of monetary policy communication, as well as the composition and legal basis for the publication of the Monetary and Credit Policy Report.

Central Bank Accountability and the Importance of Monetary Policy Communication

Monetary policy communication refers to a series of communication acts performed by a central bank with economic agents such as households, businesses, and the government, as well as the market, during the process of implementing monetary policy. In the past, there was a period of 'monetary policy secrecy' where information was not disclosed to the outside because the transmission channels of monetary policy were simple and the independence of the central bank was not sufficiently secured; however, there is currently a trend toward emphasizing accountability to ensure the effectiveness and credibility of policies.

According to the video, central bank accountability means ensuring the effectiveness and credibility of policies by transparently disclosing the details of the implemented monetary policy to the general public. In particular, since the spread of inflation targeting after the 1990s and since policy rates faced a lower bound following the 2008 global financial crisis, active communication tools such as Forward Guidance have become important. However, there are also criticisms that excessive communication may hinder the market's price discovery function, so related discussions are ongoing.

From Decision Statements to Minutes: Communication Tools for Monetary Policy Decisions

After deciding the direction of monetary policy, the Bank of Korea conveys it to the market through various means. When a Monetary Policy Decision Meeting is held, a decision statement is released immediately, followed by a press conference by the Governor. The decision statement serves to deliver the policy decision details quickly and accurately, and starting from the decision statement in February this year, content was added to disclose voting results, including the real names of members who presented dissenting opinions.

Press conferences are presided over directly by the Governor and are used as a means to minimize market misunderstanding and confusion by explaining the background and direction of policy decisions in detail. Additionally, minutes are released two weeks after the meeting is held. The minutes are a document that records in detail the major topics, issues, individual members' perceptions of the economic situation, and variables that influenced policy decisions discussed during the meeting, and they are data primarily watched by market participants and experts.

The Role and Legal Basis for the Publication of the Monetary and Credit Policy Report

The Monetary and Credit Policy Report is a report that comprehensively includes a wide range of information, such as policy decision details and backgrounds, economic outlooks, and future policy directions. Through this, economic agents can evaluate existing policies and predict future directions, and academia also evaluates the Monetary and Credit Policy Report as one of the core elements of inflation targeting.

The publication of the Monetary and Credit Policy Report is based on Article 96 of the Bank of Korea Act. In accordance with said law, the Bank of Korea must prepare and submit to the National Assembly of the Republic of Korea a report evaluating the implementation status of monetary and credit policy and the macro-financial stability situation at least twice a year. The preface of the Monetary and Credit Policy Report includes the 'General Principles of Monetary Policy Operation' announced in December 2016, which concretizes the objectives of monetary policy set by the Bank of Korea Act and specifies the basic principles of policy operation.