Limiting the risk of info leaks

Handling public releases of market-sensitive information at central banks is certainly not an easy task. One needs to balance the desire to limit the risk of misreporting with the overarching need to prevent an information leak which would be detrimental to credibility.

The Reserve Bank of New Zealand has found itself in a tricky situation amid concerns over its own handling of the release of this month's surprise rate-cut decision. A blogger raised allegations over the possibility that the information was leaked ahead of the official announcement.

In my view, there are two main reasons why RBNZ's existing arrangements, based on the publicly available information, have created the potential room for trouble.

First, there is a long lag between the actual decision and its public announcement, a whopping six days. That is not best practice. The delay should ideally be measured in minutes, or a few hours at most (including overnight to prepare the necessary documents and translated them for publication). Certainly the delay should not be measured in a number of days.

Second, the RBNZ runs lock-ups to release the rate announcement under embargo and elaborate on the reasoning, 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 therefore would be worth re-thinking.

Based on my experience, 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 lock-up regime for news agencies some years ago, is one of those few).

Still, lock-ups do make sense, but mostly for technical, complex matters that require a lot of explanation (a specific example is releasing Inflation Reports or Financial Stability Reports). Providing information on a rate decision and the main reasons behind such decision under an embargo longer than, say, 5-10 minutes is not worth the risk.

My suggestion for the RBNZ, or any central bank considering ways to employ or redesign an embargo technique, would be to organize the standard lock-ups only to provide detailed explanations on complex publications or complicated technical, regulatory matters. The most market sensitive information (such as the rate announcement) should either be released under no embargo at all, or be made available to a small group of journalists via a tight, 10-15 minute lock-up. That would help reporters get the facts right and avoid making a factual error under stress.

No market participant or analyst should have access to this sensitive kind of information before the official release. That to me is the first line of defense against an embarrassing information leak.

Once the information about a particular policy decision has become part of public domain, an open press conference would ideally be held for journalists and TV cameras, and a separate seminar organized for analysts, to explain the decision and answer detailed questions.

The most transparent central banks, such as Sweden's Riksbank and the Czech National Bank, make such analyst meetings public by providing a live webcast and making the video recording available via online services such as YouTube for every member of the public to watch.

UPDATE: Added clarification that I did not mean to suggest that a seminar for analysts, where background and detailed information about a policy decision and the latest forecast should be routinely provided, should be organised behind closed doors. Quite the opposite: It should be made public, streamed live as a video webcast and later made available online as a video recording.