Editors and Designers 2013 Conference Cleveland Ohio

• Before Bank of Uganda introduced inflation targeting-lite, communication was not very relevant for monetary policy.

Prior

July 2011

• We used to set targets for money supply believing that if we controlled money supply we would control inflation.

Money Targeting

• As the economy grew and the financial sector deepened the link between money supply and inflation grew weaker, especially at low rates of inflation.

Economic Growth

9/13/2013 1 Kelvin Kizito Kiyingi Cleveland 2013

Current Monetary Policy Framework: ITL

• Instrument: Interest Rates, which affects aggregate demand via bank credit and the exchange rate

• Instrument: Communication, which indirectly affects people’s expectations of inflation.

• Interest rates alone are not enough in controlling inflation

•The key to effectiveness lies in influencing private sector expectations

•oughin controlling inflation

•The key to effectiveness lies influencing private sector expectations Framework

•People should understand Central Bank Communication

•Clarity not ambiguity

•Avoid giving forecasts on exchange rates because it can trigger speculation

Communication •We provide forecasts for inflation to influence expectations and explain monetary policy

•Expectations influence behaviour of the private sector e.g. wage demands

Expectations

9/13/2013 2 Kelvin Kizito Kiyingi Cleveland 2013

Challenges: Volatile Environment

• Even when average inflation is low, inflation is more volatile in

developing countries than in developed countries.

• Why? Supply-side price shocks that cannot be controlled by

monetary policy e.g. drought

• These shocks affect people’s expectations because inflation

expectations are influenced by current inflation levels.

• Need to convince the public that rises in inflation caused by

supply shocks will be temporary.

9/13/2013 3 Kelvin Kizito Kiyingi Cleveland 2013

Challenges: No Informed Debate About Macro-

economics

Lack

• Low quality of business journalism; few independent and competent economic commentators in the media e.g. No one like Paul Krugman or Mohammed El-Erian

• Functional illiteracy; limited understanding of the English language.

of

• Lack of understanding of BoU’s role amidst a liberalised environment

• Public does not fully understand how the Central Bank can set Policy Rate Interest Rate and not control commercial banks lending rates.

Informed

• Relationship between interest rates, exchange rate sand inflation not well understood by the public.

• Limited grasp of what macroeconomic policy can and cannot achieve

Debate

• Paucity of independent institutions (e.g. Think Tanks) which can contribute to informed analysis, forecasts, etc.

9/13/2013 4 Kelvin Kizito Kiyingi Cleveland 2013

Communications Solutions

• Monetary Policy Statement: Clear, simple. Good sentence which can be

quoted in the media.

• Monetary Policy Statement announces the monetary policy decision,

explains the reasons for the decision and gives a forecast for inflation.

• Local Languages: Translating the statement

• Monthly press conferences by the Governor always shown on television

and extensively covered in the print and electronic media.

• Improved media relations: Radio Talk Shows

9/13/2013 5 Kelvin Kizito Kiyingi Cleveland 2013

Solutions: Website, Social Media

9/13/2013 6

Most Prolific Twitter Users in Africa

Bank of Uganda (765)

South Africa Reserve Bank (707)

Central Bank of Kenya (159)

Source: Central Banking Publications , May 2013. As of April 9, 2013.

Additional means of reaching people and directing them to www.bou.or.ug

The Website Statements Reports

Kelvin Kizito Kiyingi Cleveland 2013