Hong Kong: When Janet Yellen pulls the trigger on a rate hike, markets usually take the decision in their stride. That’s because Federal Reserve officials will have publicly debated and flagged the change for months in advance.
In Asia, things are different. Central banks in the region often surprise markets with their policy decisions, with the People’s Bank of China and the Monetary Authority of Singapore leading the list of head turners, according to a review of policy decisions since 2010 by Bloomberg Intelligence.
Some of that shock element is because these central banks meet less frequently – the MAS only twice a year – or don’t hold regularly scheduled meetings, such as the PBOC, meaning observers have fewer opportunities to read the tea leaves.
This Bloomberg Intelligence chart captures the trend.
“The MAS and PBOC top the list of Asia’s most surprising central banks with 40% and 34% unexpected policy decisions, respectively," Bloomberg Intelligence economists Tom Orlik and Justin Jimenez wrote. “The Reserve Bank of India isn’t far behind, surprising 28% of the time. At the other end of scale, the Philippines has made very few unexpected moves."
Looked at another way, by judging the total number of unforeseen decisions without controlling for the number of meetings, the Reserve Bank of India and Bank Indonesia have surprised the most since 2010 with 15 unexpected decisions each. They are closely followed by South Korea and Japan with 13 and 12 surprise moves.
At the same time, greater transparency doesn’t necessarily guarantee predictability. When Asia’s central banks were ranked by policy decisions, published minutes, press conferences, speeches by policy makers, and journalist briefings, the Bank of Japan came out as the most transparent. Yet Governor Haruhiko Kuroda has rattled markets on several occasions, sometimes by taking an unexpected action, other times by not doing anything.
“Even with minutes and press conferences, policy makers can always decide to surprise. Central bankers without those tools can still signal their intentions, if they want to," the Bloomberg Intelligence analysts wrote.
Surprises Around Leadership Changes:
A change in leadership at the top of the central bank can also be a factor, as seen when Urjit Patel succeeded Raghuram Rajan as RBI Governor and stunned markets with a rate cut. Bank Negara Malaysia’s single surprise decision since 20111 also coincided with its first leadership change in 16 years, according to the BI analysis.
Surprises Around Policy Changes:
Changes in policy direction are also a chance to surprise, as evidenced by the PBOC’s capacity to shock when they embark on a new direction.
“Even for more predictable central banks, shifts in policy direction are often surprising," the BI analysts wrote. “One take away from that: economists are good at predicting continuity, less good at predicting change." Bloomberg