Accountability, Communication, and Transparency

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Transparency is a key element in the accountability processes of independent central banks. Because they have been given greater independence, transparency of these institutions is seen as a mechanism which provides society with the ability to assess if the actions taken by central banks are consistent with their constitutional mandate. Additionally, greater transparency in the formulation and implementation of monetary policy strengthens the credibility of a central bank, improves the efficiency of its policies, and contributes to better market operations. 

In different countries including Colombia, the institutional and legal framework sets various elements that allow the actions of their national central banks to represent the interests of society directly or indirectly without compromising their independence. The most important of them is the delegation of accountability to Congress, the body that represents the interests of all citizens and to whom central banks present annual or semi-annual management reports. Additionally, to ensure that the central banks act within the limits of their legal mandates, certain instances (such as the legal control of the regulation issued and disciplinary control over the behavior of its officials) exert control over the actions of a central bank. 

Banco de la República, the Central Bank of Colombia, has technical, administrative, and budgetary independence granted by the Constitution of 1991. In accordance with the principles of accountability, it makes enormous efforts to be transparent and to communicate the strategies, policy decisions, and other relevant issues of its mandate in a clear, effective, and timely manner. These efforts take place in all aspects of the Bank's operation, ranging from those related to monetary policy to those involving cultural activities, the administration of international reserves, the production of banknotes and coins, the procedures for liquidity access (including emergency liquidity supply); the Bank’s duties as the government’s fiscal agent, and its role as promoter of the smooth operation of payment systems in the country. 

Transparency mechanisms related to the design and execution of the monetary, exchange, and credit policy—one of the main roles of the Central Bank—schematically include the actions described below: 

  • Monetary policy objectives are clearly established in the country's constitutional and legal framework: the primary purpose of monetary policy is to maintain the purchasing power of money, in coordination with the general economic policy. The goal is clear, it prioritizes, and moreover, is quantified: the Board of Directors of the Central Bank must announce every year the quantitative objective sought through monetary policy. Therefore, society can easily verify what the monetary authority pursues and whether or not it is achieving its objective. This is consistent with the constitutional requirement according to which "the Bank will report to the Congress on the implementation of the policies it is in charge of."
  • The economic information used by the monetary authority is, almost in its entirety, known by the public. The Bank discloses the information that the technical staff submits to the Board for decision-making, knows the type of models used by the staff, knows about the projections and the degree of uncertainty of the inflation forecasts as well as the range of the economic growth forecast (for the year and for the immediately prior quarter not yet published).
  • The Bank's monetary scheme (inflation targeting) is public, and the Bank cares for wide dissemination and understanding of the same by society. (i) The quantitative objective and which are the instruments is made known. (ii) A press release is published immediately after the Board meeting stating the most important elements for the decision. A press conference takes place immediately after the meeting of the Board to inform and explain the policy decision. The press conference and the Q&A session with the press is transmitted in real time through our virtual channel. All videos of the press conferences of the last twelve months are available on the Bank’s website. (iii) The working day following the meeting of the BDBR, the minutes are also published in English and in Spanish, with information collected by the technical staff and the considerations made by the members of the Board in making their decision. (iv) This day is also published the quarterly Monetary Policy Report, presenting all the public information used for the analysis of the economy and its prospects by the technical staff. The fundamental ideas of this report are presented by the Governor on national television (institutional channel), and citizens can formulate questions live by phone, face-to-face, and virtually.

 

Monetary Policy Report

 

Every month, the Board of Directors of the Central Bank analyzes the following groups of information within the framework of the latest Inflation Report:

  • Series of consumer and producer prices
  • Core inflation indicators
  • Production and expenditure indicators
  • Series of money, credit, interest rates, and asset prices
  • International economic indicators: figures for global growth and growth of the country's main trading partners; liquidity indicators; and external interest rates.

Specifically, the Inflation Reports have the following objectives: (i) to communicate to the public the vision of the Office of the Deputy Technical Governor of the Bank regarding recent developments of inflation and inflation expectations and the short-to-medium term drivers; (ii) to explain the implications of these factors for the management of monetary policy within the inflation target strategy; (iii) to explain the context and the analyses which underpinned monetary policy decisions during the quarter; and (iv) to provide information that contributes to the formation of expectations by economic agents about the future path of inflation and output growth. In the Inflation Report, the Bank's technical staff analyzes the economy and the inflationary situation and its prospects in the medium and long term based on which it provides recommendations to the Board of Directors on the monetary policy stance.

 Presentation of the Inflation Report

 

The Governor delivers a presentation of the Inflation Report, with free entry, where he highlights the most important sections of the report. The event is broadcast live on the institutional channel (channel 9 on national television) and through the Bank’s virtual channel. As with the videos of the press conferences, the most recent videos of this presentation are available on our Website.

 

Reports of the Board of Directors to the Congress of the Republic

According to Article 5 of Law 31 of 1992, the Board of Directors of Banco de la República presents a report to the Congress of the Republic twice a year, presenting the behavior of the economy and its prospects. This report is submitted within 10 working days from the beginning date of the sessions of Congress (in March and July).

The Reports of the Board of Directors to the Congress of the Republic include an assessment of the macroeconomic outcomes observed, including careful analyses of the various shocks to the economy. The reasons why there might have been a deviation from the inflation target, if it is the case, are explained in the Report. Also, a vision as to where the Bank considers that the economy is directed in the near future is presented. In addition, these reports contain an explanation of the rationale behind the monetary, exchange rate, and credit policy decisions made by the Board of Directors. It also describes the level of the country’s foreign reserves and the financial situation of the Central Bank.

The topics covered in the Report are: 

  • Economic activity and employment
  • Monetary and exchange rate policy
  • Fiscal policy
  • Balance of payments
  • Level and administration of foreign reserves
  • Financial Situation of Banco de la República.

 

In other words, the public as well as local and international markets are provided with all the relevant information about the monetary policy decision-making process (the "inflation targeting strategy"), the assessment and the rationale behind policy decisions, as well as the procedures followed. In addition, all efforts are made for this information to be understandable and timely. Thus, the Bank complements its constitutional and legal obligation to submit to the Congress of the Republic, twice a year, a report on its management as a counterpart to its independence, and with the purpose of guiding the public’s expectations regarding the management of monetary policy, which contributes to its efficiency and reduces unnecessary volatility in the markets. 

As for the transparency and accountability of Banco de la República related to its other functions, the following information is relevant: The Reports of the Board of Directors to the Congress of the Republic always contain two chapters, one reporting on the administration of the country's foreign reserves, and another one on the financial situation of the Bank. The chapter on the management of the reserves explains the criteria for the administration and reports on the results obtained, providing detailed information on the Bank’s revenue and expenses. Also, the Bank’s balance sheet, duly audited, is presented in the final chapter. All this information is available to Congress and society in general, and the members of Congress can comment and make detailed questions on any subject of the Report.

On the other hand, the Bank periodically publishes the Payment Systems Report and the Financial Stability Report. The former provides a detailed analysis of the performance of the payment systems and the actions taken by Banco de la República regarding that matter. On the other hand, the Financial Stability Reports identify the risks of the country’s financial system associated with macroeconomic factors or to the behavior of the customers of the system (families, businesses, and government).