Forward Guidance and the Private Forecast Disagreement – Case of Poland

During the period of policy easing in 2013 and prospective tightening in 2017−2019, Narodowy Bank Polski (NBP) applied forward guidance to manage the expectations of market participants. The goal of the policy was to lower the uncertainty related to the future interest rate decisions. We attempt to verify whether the central bank’s communication indeed reduced disagreement, based on the professional forecasters’ survey. We found that the forward guidance introduced in 2013 lowered the perceived interest rate risk. Abandoning the policy in 2014 increased the disagreement in a disproportionately large manner. The reintroduction of the policy in 2017 again allowed to reduce uncertainty. However, it took a year to strengthen its impact. The policy likely prevented an increase of disagreement during the NBP image crisis in late 2018. Our research highlights that it is relatively easy to lose confidence with ill-considered communication, but building credibility requires systematic long work