BIS’s de Cos: Central Banks Must Be Robust, Flexible and Realistic

26 August 2025

By David Barwick – FRANKFURT (Econostream) – Central banks need to adapt to an increasingly uncertain environment by ensuring that their policies are characterised by robustness, flexibility and realism, BIS General Manager Pablo Hernández de Cos said Tuesday.

‘The three institutional pillars of clear mandates, independence and accountability remain crucial to ensuring price stability,’ he said in a speech at the Bank of Mexico’s 100th anniversary conference in Mexico City. ‘However, to sustain their effectiveness, central banks must also adapt to the evolving economic and financial landscape.’

Frameworks should be robust enough to operate under both inflationary and disinflationary conditions, he said, noting the shift from post-crisis low inflation to the surge that followed the pandemic. ‘This means that frameworks need to be fit for purpose regardless of whether inflationary or disinflationary pressures prevail,’ he said.

Flexibility was also essential, he said, as the appropriate response depended on the nature and persistence of shocks. Central banks needed to be able to pivot quickly when expectations risked becoming unanchored, but to proceed more gradually when uncertainty about structural changes, such as the natural rate of interest, was high. ‘Such circumstances call for gradually adjusting monetary policy to minimise the risk of being overly accommodative or contractionary,’ he said.

He stressed that flexibility extended to the policy toolkit, including forward guidance and asset purchases. In emerging economies, the combination of inflation targeting with foreign exchange intervention and macroprudential measures had improved resilience, he said.

Turning to realism, he said central banks should recognise the limits of forecasts and communicate uncertainty more effectively, for example through scenarios. However, such tools should be used carefully so as not to complicate communication. ‘The key is to communicate more about risk and uncertainty, while admitting the limitations of any individual approach,’ he said.

‘More broadly, through their communication, central banks need to be realistic about what they can and cannot achieve,’ he said. Monetary policy should focus on objectives like price and financial stability, he added.