2024-03-22 02:20:57
Central banks are facing growing political pressure to cut interest rates amid a year in which many countries around the world are expected to hold elections. However, the boards of central banks must maintain their independence in making decisions, warned the managing director of the International Monetary Fund (IMF), Kristalina Georgieva.
Georgieva’s position was published on the IMF’s blog, part of the Fund’s official page, Reuters reported, quoted by BTA.
According to her, central banks that are more independent are more successful in controlling inflation and inflation expectations.
In her words, “calls to cut interest rates are growing, even prematurely, and are likely to intensify as half the world’s population votes this year.”
“The risks of political interference in bank decision-making and personnel appointments are growing. Governments and central bankers must resist this pressure,” Georgieva added.
The success of central bankers in averting a global financial meltdown during the COVID-19 pandemic was quickly followed by a tightening of monetary policy to reduce inflation. Both efforts were a function of their independence and trust in them.
By comparison, Georgieva pointed out that during the period of high inflation in the 1970s, central banks did not have clear mandates to prioritize price stability, nor clear laws protecting their autonomy, and as a result, they often have been pressured by politicians to lower interest rates.
She cited data from an IMF study which found that between 2007 and 2021, central banks with strong independence were more successful in keeping inflation expectations under control.
The IMF managing director also said that strong governance is important to ensure the independence of central banks, and governments have a responsibility to help them achieve their goals, including through fiscal prudence.
“Introducing sensible fiscal policies that keep debt levels sustainable helps reduce the risk of possible pressure on the central bank to provide cheap financing to the government, which ultimately fuels inflation,” Georgieva also explained.
She added that the IMF is ready to provide technical assistance to member countries seeking to strengthen their monetary policy frameworks.