ABUJA, Nigeria(VOICE OF NAIJA)-The President of the European Central Bank, Christine Lagarde, has emphasised the importance of safeguarding the independence of central banks worldwide amid mounting political and economic challenges.
Speaking at a conference in Phnom Penh on Thursday, Lagarde said the debate confronting monetary authorities had shifted from merely ensuring independence to defending it when under pressure.
“The question is no longer simply how to guarantee independence,” she said. “It is how to protect it when it is put to the test.”
She pointed out that central banks in emerging and developing economies had for years operated in tougher environments, noting that advanced economies could draw valuable lessons from them.
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“We have more to learn from your experience than the other way around,” she told central bankers from regions including the Middle East and West Africa attending the event.
Lagarde’s remarks come amid growing worries over political influence on monetary policy, especially in the United States, where Donald Trump has repeatedly criticised the Federal Reserve System over its interest rate policies.
She also referred to the oil crisis and stagflation period of the 1970s, saying past evidence showed that countries with weaker central bank independence were often more vulnerable to higher inflation.
“This evidence underscored the need to shield monetary policy decisions from the electoral cycle,” she said.
According to Lagarde, central banks must strike a balance between working closely with governments in serving the public while maintaining enough independence to withstand political influence.
“To best serve the public interest, a central bank must be close enough to the state but independent enough to resist the pressures of the moment,” she added.
Lagarde further cautioned that rising economic disruptions and declining public confidence in institutions could undermine the credibility and authority of central banks around the world.
“It is precisely when monetary policy decisions are politically fraught and economically costly that credibility is most needed,” she said.
Her comments followed recent remarks by ECB board member Isabel Schnabel, who warned that growing government debt burdens could gradually weaken central bank independence by mounting pressure on policymakers to maintain low interest rates.
AFP