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IF the US Federal Reserve ups the ante in terms of transparency by holding press conferences, as was suggested in the US yesterday, that will put pressure on other central banks, including Australia’s, to follow.
This is particularly as the Frankfurt-based European Central Bank already has been holding press conferences for years, and sends out copies of its minutes in 22 languages.
The Reserve Bank of Australia is still recovering from its last big tectonic move in December 2007, when it decided to announce its decisions on the same day they were made. It also started the practice of releasing short statements after its monthly board meetings, followed at least a fortnight later by the minutes of the meeting.
That followed a long campaign by The Australian and others to increase RBA transparency, but it’s only brought us up to where the US was about five years ago.
The RBA doesn’t take a transcript of its meetings, so we won’t see one of those -- as some central banks now provide -- for a while.
It was Ben Bernanke’s predecessor as governor of the Federal Reserve, Alan Greenspan, who memorably stated that "if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said".
Tony Cole, a former secretary of the Treasury who was on the RBA board in the Keating era in the early 1990s, says the RBA is now "a whole lot more transparent than it was" in his time.
He said that until the late 1980s, the RBA went in for "snugging", or changing the overnight interest rate without any announcement or explanation, until RBA governor Bernie Fraser adopted the current more transparent system of making clearly-announced moves of 25 basis points or more, in 1990.
"That was terrible," he said of the old system.
"It became quite clear to everyone that snugging was counterproductive in not making the most of what we call the announcement effect", whereby the biggest reaction to a rate move is the immediate one, followed much later by the flow-through effect.
Another recent board member who declined to be identified is in favour of press conferences, "but I wouldn’t be inclined to push it".
They say the 2007 changes have been very successful -- "the sky didn’t fall in" -- although the minutes now have to be written "for publication, rather than what minutes should actually be for".
The ex-board member says the number of public speeches now being made on an almost weekly basis by Reserve Bank of Australia governor Glenn Stevens and his RBA deputies, featuring question and answer sessions afterwards, provides a much higher degree of transparency than has ever existed previously within the Reserve.
The RBA declined to comment, but is known to be happy with the disaster-free result of the 2007 changes.
It is understood to have felt in 2007 that it had a choice between providing more written information and holding a press conference to announce monetary policy.
It chose the former because it felt there was a greater risk of miscommunication at a press conference.
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