The International Monetary Fund has urged central banks to communicate policy risks more clearly as inflation, supply shocks and other economic disruptions make fixed forward guidance increasingly difficult.
The Fund said central banks needed to help the public understand not only their objectives but also how policy would respond as economic conditions changed.
The recommendation appears in an IMF analysis on monetary policy communication in a more uncertain global environment.
During the low inflation period after the global financial crisis, central banks frequently relied on forward guidance that signaled a likely future path for interest rates.
The IMF said that approach could become costly when economic conditions changed unexpectedly.
Supply shocks, inflation surprises or abrupt shifts in risk could force policymakers to alter course.
The Fund therefore said central banks had increasingly shifted toward explaining their reaction function.
That means making clearer how incoming data, inflation expectations, economic risks and monetary transmission influence decisions.
The IMF said data dependence should help the public understand the logic behind changing policy.
It also said economic forecasts should not be interpreted as promises.
Scenarios could instead show how policy might respond under different outcomes.
The Fund recommended that rate path commitments be used only rarely and with clear conditions and escape clauses.
It also warned that more communication was not always better.
Social media, automated news analysis and artificial intelligence now allow central bank statements to be parsed instantly.
Too much detail could encourage markets to focus excessively on decoding policymakers instead of economic fundamentals.
The IMF said the purpose of communication was not to eliminate market volatility.
Rather, it was to reduce uncertainty about how policymakers would react to new information.
The Fund concluded that successful communication required clarity about objectives, forecasts, risks and the policy framework.
