New Zealand's central bank probes suspected leak

The Reserve Bank of New Zealand has hired Deloitte to determine whether information about its surprise rate-cut decision was leaked ahead of the official announcement.

Wall Street Journal reported on the probe, quoting Mike Hannah, head of communications for the central bank:

"We are aware of an allegation that information may have been leaked ahead of the official cash rate announcement on 10 March."
"While we have no evidence at this stage that any information was leaked, we take the integrity and security of market-sensitive information very seriously and have initiated an external investigation into the allegation."

Concerns about the possibility of a leak were raised by Michael Reddell, a former senior economist at the Reserve Bank, on his blog:

When I drew the matter to the attention of the Reserve Bank, they also expressed immediate concern and appropriately moved to initiate an inquiry.
I still fervently hope that the investigation is able firmly to conclude that no leak occurred. Regardless of whether it did or not, the risk of leaks remains and the Bank would be wise to tighten up its procedures and further reduce the risks.

Reddell's bet is that the information might have leaked from a lock-up:

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.

Giving journalists, and possibly also analysts, sensitive information under embargo ahead of the official public release always carries certain risks. That's why I have always advocated shortening as much as possible the gap between providing any kind of information under embargo to a select group of few and releasing it publicly. Either there is no embargo at all, or it is no more than 10 minutes or so. Also, any sensitive and potentially market-moving information should as a rule be published as soon as possible after a decision was finalised. In New Zealand this lag is clearly too long, according to Redell:

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.

That's it. There are two reasons why RBNZ's arrangements created room for trouble.

First, there is the long lag between the actual decision and its public announcement.

Second, 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.