March 24th, 2016 by Hafiz Noor Shams
Bank Negara Malaysia does not publish the minutes to its Monetary Policy Committee meetings, unlike the Federal Reserve in the United States. This keeps the rationale behind rate-setting decisions murky to outsiders sometimes.
A few economists in the past several years have bugged the governor on the matter. Acquaintance Jason Fong from RAM Ratings yesterday asked Zeti whether BNM would release its MPC minutes. She provided the same answer she gave last year — I think, also asked by Jason — that maybe in the future, the central bank would allow certain PhD students to go through the minutes for their thesis. The short answer is, disappointingly, no.
The demand for transparency goes by back to professional economists’ attempt at understanding various decisions taken by the MPC. Detailed minutes would reveal who thought what, and explain the MPC statements clearly. A more transparent process would ultimately helps in projecting the Overnight Policy Rate or other aspects of monetary policy.
But yesterday, I suppose since it was her last big briefing with all the economists in town, she felt a bit generous and volunteered a longer answer. It is a good response I think, highlighting the trade-off between transparency and frank discussion.
She reasoned having published minutes could keep participants from discussing various issues freely during the meeting. Some may even be encouraged to state something just to be on record without sharing what he or she really thinks. The end result could be one where not all views will be shared and not all views are actually honest, leaving the final decisions incapable of aggregating views of the committee members accurately. Zeti said MPC decisions are currently reached through consensus, which means, I guess, no voting.
I understand her point. I would also add having secretive element into the process protects meeting participants from political backlash, much in the spirit of Chatham House Rule, where privacy is the key to robust and frank discussions.
While I do not disagree with the governor, I can think an instance where her point could be weak.
The MPC can get away with that reasoning because there is a lot of trust in the competency and the motive of the committee members. If the next governor is one who does not inspire confidence, I think the importance of transparency will outweigh the importance of having frank and robust discussions.
These days, after all, the trust deficit is not merely a mere gap anymore. It is a gaping hole.
While Zeti is respected in the industry and everywhere else, the next governor — as well as the Finance Minister (the office which effectively appoints the governor) who is also the Prime Minister of multiple conflicts of interest —presents us all with a big question mark.