ECB’s Lagarde: ‘De Facto Independence of Central Banks Is Being Called Into Question’

27 January 2025

ECB’s Lagarde: ‘De Facto Independence of Central Banks Is Being Called Into Question’
Christine Lagarde, president of the European Central Bank, in the Girls’ IT Bootcamp in Frankfurt on April 24 and 25, 2024. Photo by the ECB under CC BY-NC-ND 2.0.

By Marta Vilar – MADRID (Econostream) – European Central Bank President Christine Lagarde said on Monday that central bank independence was under threat.

In a pre-recorded speech at the Lamfalussy Lectures conference, Lagarde said that ‘[w]hile recent research suggests that de jure central bank independence has never been more prevalent than it is today, there is no doubt that the de facto independence of central banks is being called into question in several parts of the world.’

Around 10% of 118 central banks worldwide had faced pressure from politicians in an average year, Lagarde said citing a study.

‘Another paper finds that between 2018 and 2020 alone, de facto central bank independence deteriorated for almost half of those central banks in jurisdictions accounting for 75% of global GDP’, she said.

These pressures could promote macroeconomic volatility, according to Lagarde.

‘[P]ersistent political pressure on a central bank has been found to affect the level and the volatility of exchange rates, bond yields and the risk premium’, she stated.

Geopolitical turmoil could also lead to increased volatility as the frequency of shocks impacting the global economy rose, she said.

‘While inflation has fallen sharply, central banks are still likely to face a more volatile macroeconomic environment compared with the Great Moderation’, she said.

It was ‘imperative’ for central banks to be fully independent with respect to their price stability objectives, according to Lagarde.

 

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