Central-bank independence is crucial for keeping inflation in check and contributing to people’s wellbeing, according to the new head of the Bank for International Settlements.
Autonomy allows policymakers to take decisions “based on economic considerations in the long-term public interest, free from short-term political interference,” General Manager Pablo Hernandez de Cos said Tuesday in Mexico City.
In his first speech since taking over, the former European Central Bank official stressed that independence also “shields central banks from pressures to use monetary policy to finance government budget deficits.”
The comments coincide with relentless attacks by Donald Trump on the Federal Reserve. The US president has long pressed Chair Jerome Powell to lower interest rates and in a dramatic escalation on Monday moved to oust Fed Governor Lisa Cook following allegations that she falsified mortgage documents. Cook said Trump has no authority to fire her and refuses to quit.
The Fed’s annual symposium in Jackson Hole, Wyoming, last week saw policymakers from around the world — including ECB President Christine Lagarde — express support for the Fed and Powell, with some voicing fears that central-bank independence could be undermined.
In his remarks, de Cos described a clear price-stability mandate, independence and accountability as “the anchor, hull and mast of the monetary-policy vessel.”
See also: Trump says US has much bigger leverage over China on magnets
“Central banks need institutional, functional, personal and financial independence — all of which must be underpinned by a robust legal framework,” he said.
The Spanish official also stressed the need for sound public finances. “Sustainable fiscal trajectories are critically important for central banks to be able to continue delivering on their mandates,” he said.
