Global central bankers made a concerted call for their independence from politics to be safeguarded, arguing government interference in mone-tary policy risked propelling inflation.
With Turkey engulfed by a currency crisis partly driven by political efforts to influence interest rates, Federal Reserve Chairman Jerome Powell told a conference in Stockholm that he and counterparts shouldn’t take their independence for granted when trust in public institutions is at “historic lows.”
“This is a challenging moment for central banking,” Powell told the gathering organised by the Riksbank to mark its 350th anniversary. It is “critically important to provide transparency and accountability.”
Speaking on the same panel, European Central Bank Executive Board member Benoit Coeure said political meddling risked confusing citizens about the aims of central banks. He and other speakers highlighted the importance of transparency and clear communication to build trust.
“Provided sound systems of accountability are in place, there are good arguments — both theoretical and practical — for central bank independence,” Coeure said. “These arguments can be summed up in just a few words: independence leads to better long-term outcomes for society.”
The defense of modern central banking came months after Argentina’s government changed its inflation target and not long after Turkish President Recep Tayyip Erdogan pledged to exert greater power over monetary policy if he won re-election in June.
While Erdogan this week promised to comply with global principles, the lira has remained volatile.
“Some of the comments made alerted the international community and particularly the investors to the fact that suddenly the central bank of Turkey could be under directions, instructions, or influence,” International Monetary Fund Managing Director Christine Lagarde told Bloomberg Television in St. Petersburg. “That has created a sense of uncertainty and a lack of confidence, which has found its way in the market.”
The remarks also come against the backdrop of a global populist backlash that contributed to the election victory of US President Donald Trump and has most recently led to a euro-skeptic coalition to power in Italy. Such anti-establishment sentiments have generated pressure on monetary officials worldwide.
“To respect the autonomy of the central bank is really important,” Agustin Carstens, the head of the Bank for International Settlements, said in Stockholm. The former governor of Mexico’s central bank said the challenges were greatest in emerging markets.
“The level of confidence you have achieved in advanced economies on institutions like central banks is a huge asset,” he said. “You have to be very persistent, even when inflation is low, that inflation is an important objective to defeat.”