By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Wednesday defended central bank independence as essential to credible monetary policy, arguing that insulating rate decisions from short-term politics helps keep inflation expectations anchored and macroeconomic volatility contained.
Makhlouf, who heads the Central Bank of Ireland, told the University of Oxford’s Blavatnik School of Government that independence was often misunderstood. “Independence is sometimes portrayed as a shield. I see it more like an anchor providing stability, while also allowing for some movement and flexibility when required.”
He argued that central banks’ room to take “difficult decisions” ultimately rests on credibility rather than “distance alone,” and said the post-pandemic inflation episode had pushed interest rates deeper into political debate. “There is no ‘natural law of central bank independence’. Rather it must be explained, understood and earned continuously if it is to be sustained.”
Pointing to the 1960s and 1970s, Makhlouf said monetary policy’s susceptibility to political pressure had contributed to persistently high inflation and poorly anchored expectations, while the later push to restore credibility proved costly for households and firms.
By contrast, he said the recent inflation surge saw central banks able to tighten rapidly and bring inflation back toward target without triggering a recession, attributing part of that outcome to credibility accumulated over decades of price-stability-focused policy.
Makhlouf said the Eurosystem framework placed Ireland’s monetary policy independence within European law, combining operational autonomy with accountability, and argued that the lagged effects of policy made a longer horizon indispensable if monetary policy was to stabilize inflation rather than “chase short term outcomes.”
He flagged “the risk of fiscal dominance” as a key challenge, citing January comments by the International Monetary Fund (IMF) warning that high public debt could pressure borrowing costs, tighten broader financial conditions, and amplify market volatility.
A second challenge, he said, was maintaining trust amid a communications revolution that was changing how the public consumed information, increasing the premium on engagement and clearer explanations of policy choices.
In that context, Makhlouf said independence should not be conflated with disengagement from democratic oversight or the public. "Independence does not mean isolation," he said. "In an interconnected world, credible and effective central bank policies require dialogue with society more broadly and with other institutions responsible for economic governance."
He also pointed to Ireland’s mortgage measures as an example of independently set, transparently explained macroprudential policy, while noting that political economy cycles could influence regulation and supervision even when targets were less directly observable than inflation.