Monday, December 20, 2010

Presentation mystery solved (and on CBT communication)

After getting confuzzled (have a look my latest Hurriyet column to see what this word means) by Erdem Basci's missing presentation, I emailed a few economist/journalist friends on what they thought was going on.

An economist friend found the presentation under Remarks/Remarks by Deputy Governors. I have no idea why it was moved there just after one day in the "new items" on the main page. The only explanation, which another economist friend gave, is that they might have wanted to emphasize the Governor's presentation over the weekend. But whatever the reason, this does not bode well for good communication.

And I think this is a general point: I was thinking, until the last couple of weeks, that the Bank was doing an outstanding job in the communications department, especially during their implementation of the exit strategy as well as their more recent efforts in fighting capital flows/lira appreciation, which included pretty novel ideas.

And those efforts worked, partly due to the cleverness of the good policies, but also due to good communication: For example, in the month and a half, the yield curve steepened and the share of overnight in total repos tumbled from one half to one third.

But then, I think they really blew it with the announcement of the new policy strategy, which they hinted first in the Financial Stability Report on December 7. Markets did not heed the hints simply because the FSR is not place for such drastic policy change announcements. Then, the Bank probably got worried because of the market indifference, as the Bank was planning to implement the measures next week at the MPC meeting, so what do they do? Deputy Governor Erdem Baci scheduled a weekend presentation at the Turkish Economic Association, where he spelled out the new strategy.

Let me cut down to the chase: This is not the way to communicate major policy change. That belongs to a large, carefully-written policy strategy document, or at least a well-planned speech by the Governor. I cannot grasp why the Central Bank chose not to wait until tomorrow's 2011 Monetary and Exchange Rate Policy meeting. It is true that they would have missed Thursday's MPC meeting, but then you could have gone ahead and uses something similar to Governor Yilmaz's weekend presentation in Konya, which is much more detailed and explanatory than the Basci presentations.

Unfortunately, I see the same trend in the MPC one-pager: There is a very important rationale for not making markets complacent about low policy rates, which I spell out in my latest column. In this respect, I feel that "It should be emphasized that any new data or information may lead the
Committee to revise its stance." is just not strong enough (the Turkish version is a bit stronger, but still...).

Finally, from my conversations / email exchanges with economists and finance professionals, I can assure you I am not in the minority opinion this time around!...


Emre Deliveli said...

Just a small addendum: As an economist friend is noting, the Yilmaz presentation has a list of all the instances the Bank "has been preparing" the markets to the strategy change: All the presentations, documents, etc. where the new measures have been mentioned.

True, but two objections: 1. If I went to those documents, I would also find instances of several other scenarios. How am I supposed to know which one is coming- the Bank doesn't know, either- they are just spelling out alternatives scenarios for different states of the world. Besides, such piecewise announcements would in no way substitute for a comprehensive document...

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