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The Central Bank Must See the Light Itself
Institutional investors and other market participants consider central bank autonomy to be of great importance in a market economy.
Brazil‘s President Lula has criticized monetary policy, stating that the policy rate of 13.75% was too high and the bank’s inflation target of 3.25% was too low.
The market reacted with pressure on the exchange rate, a rise in inflation expectations, and a sell-off in the stock market.
Similarly, South African Reserve Bank (SARB) has faced pressure over its orthodox monetary policy, particularly during the height of the COVID-19 pandemic, but it has held the line.
Turkey‘s President Erdogan believes that higher interest rates lead to higher prices, which has led to a crash of the lira exchange rate.
In contrast, Nigeria‘s election manifesto has pledged to preserve the independence of the central bank, and it is hoped that the administration will honour this pledge.
The central bank should be allowed to make policy changes itself, with discreet prodding from politicians, but the central bank must be seen to set the agenda.
External imposition of policy changes carries many risks, including market impact and deterioration of the current account.
Credit: https://businessday.ng/columnist/article/the-central-bank-must-see-the-light-itself/
ENND
