I went into town this morning to talk to the Reserve Bank’s inquiry looking into the possible leak of last week’s OCR announcement (see last paragraph here). I still have no idea whether there really was a leak, but it seems likely, and if so it seems likely to have come from one or other of the lock-ups the Bank runs, for analysts and for the media.
But the discussion this morning got me thinking again about some of the Reserve Bank’s processes around OCR decisions and Monetary Policy Statements. Insiders will recognize some old familiar arguments.
In many ways, it is remarkable that the Reserve Bank has not had an OCR leak, deliberate or inadvertent, before now (the memory of a couple of other earlier ones – one deliberate and wilful, one inadvertent, are still seared in my memory). As the Governor noted in his press conference last week, the decision to cut the OCR had been made the previous Friday – six days before the announcement. That delay is shorter than it used to be – at one stage, the OCR decision was being made more than two weeks prior to release – but much much longer that it needs to be, or than is the typical practice in other countries. In other countries, official interest rate decisions are typically announced within hours of the decision being made. Draft news releases announcing the decision (and covering the range of possible options) must be part of the package of papers before the respective decision-making committees.
Delays have not always been that long in New Zealand. Prior to the introduction of the OCR in 1999, the Governor used to finalise any announcement on monetary policy (since we weren’t setting a specific interest rate, the announcements were more about the Bank’s overall take on things) at a 7:30am meeting in his office on the morning of the release of the Monetary Policy Statement.
The long lag between the Governor taking the OCR decision and the release of that decision arises solely because the Reserve Bank has chosen to release, four times a year, Monetary Policy Statements at exactly the same time as the OCR announcement (in fact the OCR announcement on these occasions is chapter one of the Monetary Policy Statement). Long documents take much longer to finalise than one page OCR announcements do.
But there is no need for the two documents to be so intertwined. Other central banks typically don’t do it that way. In fact, in law, the Reserve Bank only has to publish two MPSs a year. And, frankly, the MPSs (which are shorter than they used to be) often don’t add very much beyond what was in press release – or certainly not much that couldn’t wait for a few days. I’d favour the Bank moving to a system of monthly OCR reviews (well, 11 months a year), making the announcement the day the decision is made, and moving to publish two, or at most three, Monetary Policy Statements a year, not tied to the date of any particular OCR announcement. On the one hand, it would improve security and markedly reduce the opportunity for inadvertent leaks, and on the other it might encourage the MPSs to become vehicles for more substantial background analysis and evaluation, along the lines of what the statutory provisions seems to envisage.
The counter-argument, of course, is that monetary policy is forecast-based, and so we need to see the forecasts to make sense of the policy. It is fine argument in principle, but bears little relationship to reality. Mostly, central banks respond to the immediate flow of data. Yes, those data have implications for what happens in future, but almost all the information is typically in the initial revision of view – about where things are right now, or perhaps a few months ago. And, of course, as anyone who has been inside these processes knows, the forecasts are often adjusted to reflected the Governor’s priors about policy and policy messaging (the stuff dealt with in a couple of paragraphs in the press release). That isn’t a criticism – we know so little about the future that I think it is mostly right, proper and sensible as an approach. But a full set of forecasts, and all the commentary that goes with them just isn’t necessary for the policy messages to be got across effectively. In fact, often less text is better than more on a policy announcement day – there is less chance of inadvertent differences of emphasis etc.
My other suggestion is to consider discontinuing lockups. Other central banks typically (as far as I know) don’t do them: they put the policy announcement out in the public domain, including as much or as little elaboration in the statement as the occasion warrants, and leave it to analysts and markets to work it out for themselves (sometimes with the benefit of later, open, press conferences).
There is case for lock-ups for some sorts of releases. Government budgets seem like a reasonable example, when there is a multitude of announcements, often of complex unfamiliar material. Or the release of major in-depth reports on some specialized aspect of government (which might be hard to report well, but perhaps not very market-sensitive). It isn’t obvious that OCR announcements fit that bill.
Of course, the Bank does not typically do lockups for the OCR announcements that don’t come as part of Monetary Policy Statements, suggesting that – in principle at least – the Bank agrees that OCR announcements don’t need lockups. The lockups must be for the rest of the MPS documents. But they are quite familiar in structure and content, and little of the content is particularly complex or unfamiliar.
The Bank’s lock-ups come with two sets of risks. The first is the risk of leaks. The information in OCR announcements is enormously market sensitive – look at how much and how quickly the exchange rate moved on last week’s announcement, creating a huge incentive for someone to try to cheat. 40 years ago it might have easy to secure people in an ordinary room, with no risk of them being able to communicate with outsiders. Central bankers weren’t at much of a disadvantage in managing those who might want to cheat. It is hard to believe that the playing field is quite so level these days, with all the advances in technology, including very small scale technology. At least while I was at the Bank, the analysts’ lock-up used to occur in a room in which people could be seen quite easily from neighbouring apartments (other clever ways of signaling, getting round the rules, were covered in this recent New Yorker article – more, outside fiction, than I had ever read about bridge). Perhaps no one ever abused the systems, but why take the chance that someone one day finds (or just exploits) a way around the Bank’s precautions? Perhaps they did last week.
The second risk, and perhaps more often practically important, is that the lock-ups are not just occasions when people are shut in a room with a document and left to digest it. In these lock-ups staff, often quite senior staff, are available to answer questions and offer clarifying comments. There is often plenty of ambiguity around Reserve Bank statements – it isn’t like the specifics of a technical Budget announcement – and that creates the risk that attendees of a lock-up get information on the Bank’s views and interpretations that isn’t available to everyone else, or that people get slightly different messages depending on who they happen to talk to in the lock-ups.
It is quite valid for the Reserve Bank to have messages it wants to convey with OCR releases. Those messages should be written down – debated and refined internally as required – and then be available to everyone. Further comment shouldn’t really be necessary, but if it is necessary or desirable to have occasional press conferences then at least (as the Bank does) they can be audible/visible to all (via the webcast).
On another, different, Reserve Bank topic, I was talking the other day to a business person who had been visited by Reserve Bank staff on their regular business visits, gathering conjunctural information. This person told me that he had asked the staff whether the Bank was doing any work on reforming the governance of the institution. The staff apparently responded that they were doing so.
If this report is accurate it is quite newsworthy. Previous reports had led us to believe that the Bank had done extensive work on possible governance reforms, but had completed the project. They would not release any of the papers relating to the work. Information that The Treasury released a few months ago confirmed that the Bank’s work has been discontinued, and that the Minister of Finance had indicated (against Treasury’s preferences) that he did not want work in that area continued with. Perhaps some journalist might care to ask the Bank whether this report is accurate, and whether they do have work underway on governance reforms. If they do, and if the Minister is becoming more interested, that would be very welcome news. But perhaps some young economist just had the wrong end of the stick, or misinterpreted the question?
5 thoughts on “Reforming Reserve Bank releases”
Interesting piece – thanks.
Hear what you say, and totally agree that there should be ways of shortening the gap between decision and publication to mitigate leak risks. And I suppose lock-ups do have an increased leak risk (though, at least in NZ, there have been so many lock-ups, and so few if any deliberate leaks, that maybe the risk from lock-ups is very low indeed).
But I think there’s another, democratic, case for lock-ups beyond the complexity/unfamiliarity one that should go into the overall net benefit calculation. The big institutions of state already have a great capability for presenting and shaping the agenda, but at least a lock-up enables the Third Estate (including its social media practitioners) to get a considered response out into the marketplace for ideas as quickly as the official message. I can remember in particular, when I was temporarily seconded as an economic to the then Leader of the Opposition, how the government of the day would not allow me access to the Budget lock-up, which I thought spoke volumes about its efficacy as an evening-up process.
I think that is an entirely fair argument for complex technical releases (eg the Budget, with detailed taxs or benefit changes). I’m just not so sure that OCR decisions are that level of complexity – and the whole industry of Rb watchers writes about the releases whether or not we/they go to lockups. Are you aware of any central bankers in other countries using lock-ups for interest rate decisions? I’m not, but I’m not confident of the comprehensiveness of my knowledge on that point.
The Bank of England holds lock-ins for each interest rate decision, in addition to press conferences four times a year. I agree with you they offer limited value, though I do find lock-ins for technical subjects such as financial regulation very useful.
I don’t know of any other central bank that offers them for rate decisions.
Thanks Daniel, and yes I agree on the usefulness for technical subjects.
Based on my experience (as a former central bank communications director), organizing lock-ups for interest rate-decision releases is not a standard, wide-spread practice among central banks. As far as I know, few central banks provide information on rate decisions under embargo – be it via lock-ups or other means (the Czech National Bank, where I set up that regime, is one of those few). Contrary to Dan, my understanding is that not even the Bank of England allows access to the information about the rate decision under embargo. They do organize lock-ups, as Dan says, but they have – to my knowledge – done it only to share the Inflation Report, arguably a complex, technical publication. But things may have changed lately and I do not have the latest details about their procedures. The Fed also used to provide the FMOC statement under embargo to accredited journalists, but again, I am not sure about the current practice. The ECB is publishing the information in real time via a simple press release, and then Mr Draghi holds a press conference to provide justification and other comments.
Still, lock-ups do make sense, but mostly for technical, complex matters that require a lot of explanation. Providing information on a rate decision and the reasons behind such decision under an embargo longer than, say, 5-10 minutes is not worth the risk.
In my view, there are two reasons why RBNZ’s arrangements have created potential room for trouble.
First, there is the long lag between the actual decision and its public announcement. That again is not best practice. The delay should ideally be measured in minutes, or a few hours at most, certainly not a number of days.
Second, the Bank runs lock-ups to provide the information as well as elaborate on the reasoning behind the rate decision, not only for members of the media, but for market analysts as well. It is unclear how long before the official release the people in the lock-up receive access to the embargoed information, but it surely must be more than 15 minutes (otherwise such extended lock-ups would not make much sense). If it indeed is more than 15 minutes, that again is too long, and not a standard practice, and therefore would be worth re-thinking.
My suggestion for the RBNZ would be to keep the lock-ups only for elaborating on complex publications and/or technical matters. The most market sensitive information (such as the rate announcement) should either not be provided under embargo at all, or be released via a very short, 10-15 minute lock-up, which would only be accessible to members of the media to help them get the facts right and without the risk of a factual error made under stress. No market participant, including analysts, should have access to this kind of information before the official release. That to me is the first line of defense.
Afterwards, open press conference could always be held for journalists, and a background seminar for analysts, to explain the decision and answer detailed questions. But the rule should be that this press conference and the background seminar are held only after a decision has been released, and has thus become part of public domain.