"To Enhance Credibility of Monetary Policy, Expand Communication But Avoid Excessive Commitm...

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“To Enhance Credibility of Monetary Policy, Expand Communication But Avoid Excessive Commitments” [ESF 2026]

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Day 2 of the 17th Edaily Strategy Forum

Geopolitical risks are widening monetary-policy uncertainty

“The background behind rate decisions and policy limits needs to be explained”

“Too much forward guidance could damage credibility”

[Edaily By Reporter Yeon-seo Kim, Yu-rim Lee, Da-won Lee and Ju-hwan Kim] As geopolitical tensions and economic uncertainty continue to intensify, experts have highlighted the growing importance of central banks‘ monetary policy decision-making processes and communication strategies. With social expectations for central banks expanding beyond price stability and financial stability to include inclusive finance and regional development, they pointed out that central banks must more clearly explain the underlying background and limitations of their policy decisions to the market.

Yoon-jae Cho Former Member of the Monetary Policy Board, Bank of Korea; Soo-Min Park Member of the National Assembly (People Power Party of Korea); Dong-hyun Ahn Professor, Department of Economics, Seoul National University; Cynyoung Park Director, The South East Asian Central Banks(SEACEN); Andrew T. Levin Professor, Economics, Dartmouth College; and Jin-il Kim Member of the Monetary Policy Board, Bank of Korea, participate in a panel discussion under the theme of "Monetary and Financial Strategies for Sustainable Growth in an Age of Disorder" at the 17th Edaily Strategy Forum held at the Shilla Hotel in Jangchung-dong, Jung-gu, Seoul on the 17th. Convened under the theme "The Age of Power, Recasting Civilization : Who Designs the New World?", the Forum was organized to dissect from various angles the turning points in diplomacy, security, finance, and fiscal policy faced by our society amidst geopolitical upheavals, including the US-China hegemony competition, the war in Iran, and the strengthening of America First policies, and to seek breakthroughs amid crises. (Photo = Young-hoon Lee, Edaily Reporter)

At a panel discussion held on the 17th at The Shilla Seoul in Jung-gu, Seoul, under the theme “The Age of Power, Recasting Civilization : Who Designs the New World?”, participants in Session 3, “Monetary and Financial Strategies for Sustainable Growth in an Age of Disorder,” stressed the importance of communication in enhancing the credibility of monetary policy.

Moderator Yoon-jae Cho Former Member of the Monetary Policy Board, Bank of Korea and Distinguished Professor, Graduate School of Economics, Yonsei University, stated “As geopolitical conflicts intensify and economic uncertainty rises, the environment surrounding monetary policy is becoming progressively more difficult,” He added, “At the same time, public expectations of central banks have expanded for central banks are expanding from price stability to financial stability, inclusive finance, and even regional development.”

Representative Park Su-min of the People Power Party pointed out that central banks should provide more comprehensive explanations of their policy decisions.

“Simply announcing whether interest rates are being raised or lowered is not enough,” he stated. “Central banks should provide a faithful explanation of the considerations and judgments behind rate decisions, as long as it does not create confusion.”

Rep. Park also expressed a positive a positive stance regarding the necessity of forward guidance. Forward guidance refers to a preemptive guiding measure where a central bank signals the future direction of monetary policy to the market based on its assessment of upcoming economic conditions.

He further added. “Structural issues such as real estate polarization cannot be resolved by monetary policy alone. The central bank must clearly explain its limitations so that more appropriate division of roles with the government canalso become clearer.”

Dong-hyun Ahn, Professor of Economics at Seoul National University, cautioned that forward guidance can create misunderstandings between simple forecasts and firm policy commitments.

Professor Ahn stated, “If a central bank speaks strongly about the future path of interest rates, markets may interpret those statements as promises,” adding, “If circumstances later change and the bank fails to keep that promise, the central bank’s credibility damage or backlash is inevitable.” He noted that strong forward guidance could be particularly burdensome for Korea, as the nation remains heavily influenced by U.S. monetary policy and foreign exchange rate fluctuations.

“Although Asian economies are closely interconnected through regional trade and global supply chains, their financial systems still depends heavily on dollar-based structures,” adding, “This leads to repeated dollar liquidity problems whenever a crisis occurs.”

Park acknowledged that it is realistically difficult to replace the U.S. dollar‘s network effects and deep liquidity within a short term. Nevertheless, she emphasized,

“Asia’s financial resilience will continue to be vulnerable as long as the dollar-dependent structure remains unchanged,” adding, “Regional central banks and financial authorities should continue their collaborative efforts to strengthen and integrate financial markets and systems.”

She also noted, “There are limits to trying to resolve inclusive finance or support for innovative firms solely through policy-based finance and regulations,” concluding, “It is equally important to strengthen market functions so that the financial market can discover prices efficiently and allocate capital more effectively.”