The International Monetary Fund (IMF) has advised central banks against committing to fixed interest-rate paths, urging policymakers to, instead, explain how monetary policy would respond to changing economic conditions.

The advice is relevant to the Central Bank of Nigeria (CBN), which is navigating inflation, exchange rate volatility and other domestic and external shocks.

In a new note authored by Tobias Adrian, the IMF said the forward guidance approach that became common after the 2008 global financial crisis, when central banks signalled a likely interest-rate path, had become less effective in an environment of frequent supply shocks and sudden changes in economic risks.

It said inflation surprises, supply disruptions and shifts in the balance of risks could force central banks to change course, making rigid rate commitments costly.

The IMF advised central banks to focus their communication on how they assess incoming economic data, inflation expectations and the transmission of monetary policy — rather than providing rate forecasts that markets could interpret as commitments.

It warned that when policy-rate projections are communicated too precisely, subsequent changes could be misread as policy reversals, potentially increasing market volatility.

The Fund said rate-path commitments should therefore be used only in exceptional circumstances and should remain conditional, with clear exit clauses that make price stability the overriding objective.

The IMF also highlighted the growing influence of social media and artificial intelligence-driven news analysis on how central bank statements are interpreted in real time. It warned that excessive detail could cause markets to focus on decoding policymakers’ statements rather than assessing underlying economic fundamentals.

The Fund said the objective of central bank communication should not be to eliminate market volatility, but to reduce uncertainty about how policymakers would respond to new information, allowing markets to continue performing their price-discovery role.