Communication of monetary policy decisions

Introduction

1. The sixth of the Government's terms of reference for the Review of the Operation of Monetary Policy states:
   "The communication of monetary policy: The Reserve Bank's communication of monetary policy decisions will be reviewed to ensure that these decisions are explained to the public and financial markets in the simplest, clearest and most effective way possible."

2. This note is a partial explanation of how the Reserve Bank manages the communications of monetary policy. How the Bank states its specific requirements in terms of monetary conditions, and the nuances expressed within, for example, Monetary Policy Statements, are not described here. Rather this note explains the mechanics of how the Bank communicates and explains monetary policy, and some of the considerations that go into the generic explanation of monetary policy made to the general public.

Monetary Policy Statements and formal OCR announcements

3. Four times a year, the Reserve Bank releases a Monetary Policy Statement (MPS). This is a booklet, typically of about forty pages, in which the Bank states the new Official Cash Rate, the rationale for that decision and how the Bank sees the economy and inflation in the period ahead. A statement of this kind is required twice a year by section 15 of the Reserve Bank Act, it being the Bank's choice to do this four times a year. In addition, roughly mid-way between the release of these MPSs, the Bank makes an additional OCR announcement, giving eight reviews in total annually.

4. In terms of the mechanics of these formal communications of monetary policy decisions, the Reserve Bank applies the following principles.
   • We ensure, as far as is physically possible, that information is available to market participants at the same moment in time, so that no participants receive an advantage through the markets being partially informed.
   • We attempt to give reporters time to fully absorb the subtleties of the subject matter by giving them time to read relevant materials before having to file stories. This is to ensure accurate and balanced reporting as much as possible.
   • At the release of quarterly MPSs, Governor Brash is available to answer reporters' questions, both at a press conference and through one-on-one interviews.

5. In addition, we do not attempt to "steer" the markets via speeches or other communications techniques between OCR reviews. This contrasts with some other central banks, so, for example, Dr Brash's on-the-record speeches almost invariably do not contain any new information about how the Bank views inflationary pressures or the appropriate stance of monetary policy. We do not attempt to "prepare" the markets for impending OCR announcements. We avoid doing this partly because we believe it risks creating market volatility and confusion, and at the same time it isn't necessary, given that the Bank publishes forward projections and extensive detail of its monetary policy thinking in each Monetary Policy Statement.

6. The simultaneous release of market sensitive information is achieved in the following ways. In the case of MPSs, a two-hour early morning lock-up is organised for reporters. Reporters are provided with the written material under embargo, and staff are available from the Bank's Economics Department to provide background explanations. The embargo is lifted at 9.00 am, after which Dr Brash holds a press conference and then grants one-on-one interviews.

7. The key elements in the written material provided to reporters are the MPS itself and a press statement, which also announces any adjustment to the Official Cash Rate. The press statement is important, in that it is used to first release the most critical information to the markets. This is done via a computer link between the Bank's Financial Markets Department and the wire services (Dow Jones, Reuters, Bloomberg and Bridge), so that the press statement is placed on wire service customers' screens simultaneously. Until this is done, the embargo in the lock-up is not lifted, ensuring that as far as possible the markets learn "the news" simultaneously, i.e. from the screening of the press statement. Intra-quarter Official Cash Rate adjustments are also announced this way.

8. When MPSs are issued, a lock-up is also held for financial analysts. Typically about thirty attend. The analysts attending receive the written materials one-hour prior to its public release under embargo and are briefed by senior Bank economists.

9. In addition, whenever Dr Brash does a substantive on-the-record speech, a lock-up is held beforehand for real-time media (the wire services and radio), with the embargo lifting just before Dr Brash begins speaking. Earlier we sent out speeches under embargo, but occasionally these embargoes were not honoured.

10. It should be noted that the minutes of the Bank's Monetary Policy Committee for the meetings leading up to OCR decisions, or in general, are not made public. Under the Reserve Bank Act, monetary policy decisions are the Governor's alone, and the Monetary Policy Committee is purely an advisory committee made up of Bank staff only. The Bank believes that the printed MPSs are sufficiently detailed, especially in terms of projections for up to three years ahead, that they provide a full picture of the reasoning behind particular OCR decisions. In addition, making the minutes of the Monetary Policy Committee public would restrict the free and often robust discussion that takes place in that forum. This would reduce the value of the committee to the Governor in terms of its providing diverse, high quality and, if need be, unpalatable advice.

11. Another accountability mechanism in terms of monetary policy decisions is that the Governor and other senior Bank staff appear in front of Parliament's Finance and Expenditure Select Committee, typically five times a year. These are open meetings and occur after the release of each MPS and the Annual Report.

Generic communications about monetary policy

12. Aside from the formal release of Monetary Policy Statements and OCR decisions, the Reserve Bank actively seeks to explain monetary policy to the general public. We take the view that this is important, in terms both of managing inflationary expectations and of ensuring on-going public support for price stability as the goal of monetary policy.

13. The Reserve Bank has also given considerable thought to evolving the tone of its external communications as circumstances have changed. When the Bank first began inflation targeting, New Zealand still had relatively high inflation and high inflationary expectations. In that context, the Bank deliberately presented itself as being focussed on achieving price stability. This was achieved through having a high public profile and through the content of the Bank's external communications, which emphasised the Bank's absolute determination to "bust" inflation. This was done because the Bank needed to build its credibility and, to that end, the cost of public perceptions that the Reserve Bank was "obsessed" with inflation was worth paying.

14. However, in the context of price stability having been achieved, the Reserve Bank's public image has evolved into that of a more balanced institution that also thinks more widely about the context within which it operates.

15. We have also increasingly sought to reduce expectations as to the capacity of monetary policy alone to drive economic growth, emphasising that it is merely one of the building blocks of a successful economy. Likewise, we have increasingly sought to make clear the inherent uncertainty in our economic projections and actual monetary policy decisions. Again this is the fact of the matter, and we have been keen to educate the public not to expect an unrealistic degree of predictive accuracy in the Bank's projections.

16. Methods used include:

Speeches

17. The Governors, and occasionally other staff, deliver a large number of speeches around the country to many different audiences. Most are on topics related to monetary policy, most are off-the-record, and a few are on-the-record. For example, from 1 July 1999 to 30 June 2000 Dr Brash and other Reserve Bank staff gave 59 off-the-record speeches within New Zealand and 11 speeches in New Zealand and offshore on-the-record. A table of these speeches is provided below.

18. Dr Brash has twice undertaken "roadshows" in which over a two week period he has toured the country addressing a multitude of audiences, especially in provincial areas. The purpose of these roadshows has been to make contact with a wider audience than usually reached when accepting speech requests from sector groups, service organisations and the like. Mostly the topic discussed is monetary policy and its role in the economy. In the last roadshow, in late 1998, Dr Brash addressed representatives of small and medium businesses in 23 towns and cities over two weeks, reaching about 5000 people.

19. Off-the-record speeches are important in that they help build a constituency of public support for the goal of price stability and an understanding of the rationale behind monetary policy decisions. In a country as small as New Zealand, a programme of off-the-record speeches can have an impact impossible in a larger country.

20. On-the-record speeches are usually focussed on issues that are the concerns of the day, their value being that they allow Dr Brash in a personal way to put on the record the Bank's views. Media coverage is almost always widespread. On-the-record speeches are also mailed to relevant audiences. A typical speech mail-out is to about 1300 addressees, including the media, Members of Parliament, sector group leaders, educational institutions and so on. In the Bank's view, the mailing of speeches is very important as a way of informing audiences of "opinion leaders".

Regional relationships

21. Three times a year, the Reserve Bank holds its monthly Board meeting away from the capital. This is to help the Bank build understanding of its activities throughout the country. A function is held for local business and community leaders to give them a chance to bring their concerns to the Reserve Bank's directors and senior managers directly.

Media interviews

22. Day-to-day, the Reserve Bank attempts to be open to the news media. The Bank receives numerous requests from journalists for interviews, mostly about monetary policy. In general, the Bank takes the view that it should be accountable to the public and therefore should accept interview requests. This, we suspect, is at variance with many other central banks. The one exception is that the Bank does not grant interviews to journalists who want to publish material that is market sensitive. Thus if a journalist wishes to ask Dr Brash whether current interest rates are appropriate, we reply "Wait for the next MPS". However, that aside, a request for an interview will be granted unless there is a good reason otherwise. What this means in practice is that if a reporter seeks an interview about the conceptual elements of monetary policy, generally the interview is granted.

23. In addition, off-the-record briefings are regularly provided to reporters. These are also augmented by a series of annual lunches held for Wellington-based financial media to give reporters the opportunity to informally discuss the Bank's activities and especially the workings of monetary policy.

Publications

24. The Reserve Bank publishes a range of documents explaining monetary policy, pitched at a range of audiences from the technical to the general public. Publications for technical audiences include research papers and The Reserve Bank Bulletin. Recently the Reserve Bank has also published a book entitled Monetary Policy Under Uncertainty.

25. For the general public, a range of brochures is available, some generic and some specifically about monetary policy. In recent years, titles have included:
    • This is the Reserve Bank
    • Nga Mahi a te Peke Putea Matua (Functions of the Reserve Bank)
    • The Reserve Bank of New Zealand Act 1989: Our Accountability to New Zealanders
    • Monetary Policy Over the Business Cycle
    • The Impact of Monetary Policy on People
    • The Impact of Monetary Policy on Exporters
    • The Impact of Monetary Policy on Farming

26. We also commissioned a one-off publication, Mary Holm's The REAL Story: Saving and investing now that inflation is under control. This involving employing a free lance journalist to write a booklet providing accessible advice on how people should manage their personal finances in the context of a low inflation environment. This was a response to persistently high inflationary expectations, at odd with the facts, held by the public in relation to personal finances and especially small-scale speculative property investments. Public interest in the document was considerable, the total print run being 73,000.

27. The Bank produces an Annual Report, which has won first prize in the Society of Chartered Accountants Annual Report Awards for "public sector entities – non commercial" five times in the last decade including for the last two years. The editorial section has changed in recent years from a series of reports on functional outputs to a more "plain English" report on the year's events.

28. A more generic publication Briefing on the Reserve Bank is prepared whenever general elections occur, to provide a background resource on the Reserve Bank's functions and activities for an incoming Treasurer. It is also made public.

Internet

29. All the above publications are available on the Bank's website at www.rbnz.govt.nz. The Bank's website contains the Bank's on-the-record statements etc, and use of the site continues to climb. The Reserve Bank was one of the first central banks to use this medium, which we initiated in 1996.

Education

30. The Reserve Bank has sought to augment public understanding of its activities and policies by providing resources to the education system. For 15 and 16 year old secondary school economics students, in 1995 we produced an education kit entitled Inflation: a sixth form resource, which concentrates on the merits of price stability. In 1996 we produced, in conjunction with the Bankers' Association, a kit called The Tale of the TT2.. Aimed at 7 and 8 year olds, this introduces children to the notion of prices. It compares changing prices of confectioneries over the years, the TT2 being an early ice-block. For students aged 13 and 14, in 1997 we prepared an education kit called The PIE Kit, which is a general introduction to economics. PIE stands for people, inflation and economics.

31. The Reserve Bank's latest educational venture has been the sponsorship of a text book entitled Reporting Economics which the Journalist Training Organisation is using as a course text book for training mid career journalists who want to be business reporters.

32. The Bank is also a part sponsor of the Financial Literacy in Schools programme organised by the Enterprise Trust, which provides resources to secondary schools to teach personal financial management skills. The Reserve Bank also receives numerous requests from schools wanting to visit the Bank. We provide a seminar, usually delivered by one of our junior economists.

Monitoring public opinion

33. To better explain monetary policy to the general public, the Reserve Bank commissions polling to ascertain how the Bank is perceived. This is done twice a year, an example being attached.

Letters to the editor

34. The Reserve Bank puts a considerable effort into answering concerns and correcting errors reported in the news media. Most commonly, this involves submitting "letters to the editor" to newspapers and magazines. These can be in the name of the Governor or of other Bank staff, depending on the importance of the issue concerned. In broad terms, the Bank does not respond to expressions of opinion, but does respond to incorrect statements of fact, especially if made by credible commentators or public figures.

Reserve Bank New Zealand speeches 30 June 1999 to 1 June 2000

Included are on- and off-the-record speeches in New Zealand and on-the record off-shore speeches.