A step forward in the battle for transparency

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A step forward in the battle for transparency
By The Nation
2011-01-28

Greater transparency in monetary policy decisions is a welcome development during a time of ongoing economic uncertainty

The Bank of Thailand (BOT) should get credit for publicly disclosing the minutes of its Monetary Policy Committee (MPC) meeting, for the first time, on Wednesday. Such a move is good for accountability and transparency, especially as far as the public is concerned. After all, the central bank's interest-rate policy is crucial to the management of the country's macro-economy.

In several other countries, central banks and monetary authorities also publicly disclose details of their meetings in order to inform the public of the rationale behind their decisions on interest rates. For example, the US Federal Open Market Committee (FOMC) says it holds eight regularly scheduled meetings during the year, and other extraordinary meetings as needed. In addition, their policy statements and minutes are publicly listed, with the minutes of regularly scheduled meetings released three weeks after the date of the policy decisions. The FOMC also makes an annual report in accordance with the Freedom of Information Act, which guarantees the public's right to know.

In the case of Thailand, decisions on benchmark interest rates were previously made only by the governor of the Bank of Thailand. In the wake of the 1997 financial crisis, the MPC was set up to directly take charge of interest-rate decisions, with the governor being the chair for all meetings. At present, the MPC has seven members, including the BOT governor. Previously, the public did not have any clear idea about how the MPC arrived at crucial decisions that could affect the stability of the Thai economy and the people's well being. This was especially true when there were many divergent opinions on whether Thailand's interest rate should be put on hold or should be raised. The debates naturally intensify during times of domestic and global economic uncertainty.

From now on, the public will be better informed. People will have a better understanding of the country's economic direction and how decisions are made behind closed doors.

Dr Prasarn Trairatworakul, who was appointed governor of the central bank recently, can also hope that the business community and ordinary people alike will be now be better prepared either for up-trends or down-trends in the light of key interest-rate decisions. Undoubtedly, a rise or fall in interest rates - both for lending and deposits - affects the country's savings rate as well.

The minutes of the MPC meetings, which will be released after an interest-rate decision is made, will serve as an early warning system in the event that interest rates, for example, may be further increased to tame rising inflation. The cost of borrowing for both businessmen and others - such as home and automobile buyers - is an important consideration, and they will appreciate all means by which they can gauge future trends.

The MPC, however, will only disclose publicly the overall vote on each of the specific interest-rate decisions; it will not identify the votes of individual MPC members. For example, at the last meeting of the MPC on January 12, the vote was a unanimous 7-0 for a 25 basis-point hike of the benchmark interest rate, bringing it up to 2.25 per cent. Reasons were given why the MPC believed that the interest rate should go up. In the event that a future vote is split, the voting members will not be identified individually, in order to protect the integrity of the MPC as a body.

The adoption of a more transparent policy on disclosing the MPC's minutes could not come at a better time, as uncertainties surrounding global and domestic economic stability, as well as political conditions, have reached a new height.

Overall it remains unclear how the US will further conduct its own monetary policy, which has ramifications for the rest of world, including Thailand. This was seen last year when the baht reached a record high against the dollar and other currencies, hurting the competitiveness of Thai exports.

The prices of crude oil and other commodities have also been rising sharply, while inflation in the Thai economy is also heading higher, posing a bigger risk to economic stability as compared to last year.

All these developments will have a great bearing on the upcoming MPC decisions on policy interest rates that the Thai public must have the right to know about.