Can there ever be too much information? The Reserve Bank seems to think so. But, in truth, in an era in which we can find out what our neighbour had for breakfast via social media, the idea that more critical and substantial information could be problematic is puzzling.
To be sure, the Bank’s monetary policy framework — a toolbox for managing the economy via money supply and interest rates — is comprehensive and transparent. Since late 1999, when the central bank decided to honour us with its first monetary policy statement, nearly 80 years after its establishment, it has outdone itself in the communication department.
With six monetary policy decisions a year, each followed by a detailed monetary policy committee (MPC) statement reporting the votes, followed by a press conference and the next day’s market analyst briefing, led by the governor and an entourage of MPC members, it is an extensive communication effort.
The Bank’s communication methods are nothing short of exhaustive: from a twice yearly Monetary Policy Review and the governor’s annual discussions in parliament, to public lectures and monetary policy forums countrywide aimed at engaging the broader public.
One might think it has covered every possible communication channel. Except it has not, according to an IMF report on the Bank’s transparency. There is a glaring gap regarding dissenting votes in the MPC deliberations, for one thing. For another, alternative risk scenarios regularly produced by the Bank staff for the MPC remain hidden from the public.
Then there are monetary policy statements and monetary policy reviews. Sure, they contain complete economic projections, including underlying assumptions and forecasts of inflation, output, policy rate and the exchange rate, but fall short where it matters most. Both lack a clear preface confirming MPC ownership and accountability and leaving everyone guessing.
The IMF said MPC members anonymously sharing their individual views — not much different from judges issuing majority rulings with concurring and dissenting opinions — could boost public understanding instead of stifling meaningful debate.
It has a point. Tokenism and groupthink in trying to present a united front is more than a theoretical risk. Remember the 2008 financial crisis? It was a textbook example of what happens when everyone marches to the same drumbeat and dissenting voices are drowned out.
A year before the most severe economic crisis since the Great Depression sent ripples around the world, former Bank of England policymaker David Blanchflower stood alone in advocating for rate cuts to cushion the British economy from a prolonged downward spiral. He was derided as a maverick, his dissenting voice getting no mention of recession risks in the UK MPC inflation report of August 2008.
The silencing of dissenting votes can lead to wild speculation and misinformation, rattling the market with unexpected verdicts on the direction of interest rates.
Yet in SA the Bank remains notably tight-lipped about dissenting votes within the MPC deliberations.
So, why the reluctance? “While central banks could be more explicit in their discussions regarding dissenting views, this is not considered best practice, but rather a choice that should be made with much discretion and understanding of a country’s political economy and policy setting.” Translation: SA is not England or Canada, which heeded the IMF recommendation to release the minutes from its policy-setting meetings two years ago, and any attempt to convey such nuances is risky.
The Bank’s stance is rooted in a valid concern: differing opinions could lead to misinterpretation, potential free-for-all speculation and market volatility, making the Bank’s job even more challenging. Cheerleaders for selective transparency would argue that more information is a recipe for confusion, complicating an already messy situation. While analysts’ inflation expectations are neatly anchored within the official target band, businesses and trade unions are living in a parallel universe where inflation rates are skyrocketing.
For instance, labour unions often demand wage increases of four or even five times the inflation rate, while administered prices — notably Eskom’s pleas for a tariff increase more than 10 times the inflation rate — can lead to higher inflation expectations among businesses and consumers, even if the overall rate remains anchored. Fair enough.
Still, the silencing of dissenting votes can lead to wild speculation and misinformation, rattling the market with unexpected verdicts on the direction of interest rates. The US Federal Reserve, on the other hand, has mastered the art of predictability since it started releasing federal open market committee minutes in the late 1990s. The minutes have soothed the markets, assuring them about the most likely path of future rates.
The result? The Fed is as predictable as sunrise, fostering market stability, anchoring expectations and reducing speculation. Boring, right? But to suggest that central banks should avoid being predictably boring and embrace mystery is a bit like questioning the very metrics the central banking world holds sacred.
To be clear, the quest for transparency is not a search for certainty that monetary policymakers simply cannot provide. But as unelected public officials MPC members wield significant power and must uphold a higher standard of accountability to the public whose economic wellbeing they influence.
The Bank’s cautious approach has its merits, but a bit more openness would not hurt. Transparency is not a zero-sum game and in the intricate world of monetary policy sometimes more is more — if handled with care.
And yes, the inherent conflict of interest of a journalist pushing for more transparency is not lost on us. But sometimes, knowing when to pause and reflect is the most valuable insight of all.
• Motsoeneng is Business Day’s acting editor.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.