The International Monetary Fund (IMF) has advised central banks across the world to maintain independence and shun political interference in decision-making and personnel appointments.
Kristalina Georgieva, IMF Managing Director, in a report posted on the Fund’s website, said governments and central bankers must resist these pressures.
She emphasized that strengthening central banks’ independence will protect the global economy and help tame inflation.
“Independence is critical to winning the fight against inflation and achieving stable long-term economic growth, but policymakers risk facing pressure amid a wave of elections this year,” she said.
According to Georgieva, central bankers now face many challenges to their independence.
“Calls are growing for interest-rate cuts, even if premature, and are likely to intensify as half the world’s population votes this year. Risks of political interference in banks’ decision-making and personnel appointments are rising. Governments and central bankers must resist these pressures,” she said.
“But why does this matter? Just consider what independent central banks have achieved in recent years. Central bankers steered effectively through the pandemic, unleashing aggressive monetary easing that helped prevent a global financial meltdown and speed recovery”, she said.
Georgieva noted that as the focus shifted to restoring price stability, central bankers appropriately tightened monetary policy—albeit on different timelines. Their response, she stated, helped to keep inflation expectations anchored in most countries even as price increases reached multi-decade highs. Emerging markets were leaders in tightening early and forcefully, enhancing their credibility.
“These central bank actions have brought inflation down to much more manageable levels and reduced the risks of a hard landing. While the battle isn’t yet over, their success thus far has largely been because of the independence and credibility that many central banks have built up in recent decades,” she said.
Georgieva said the recent success in bringing down inflation contrasts sharply with the economic instability that prevailed during the high inflation period of the 1970s. Back then, central banks didn’t have clear mandates to prioritize price stability, or clear laws protecting their autonomy. As a result, they were often pressured by politicians to lower interest rates when inflation was high.
“Everyone was hurt by this high inflation, boom and bust era—especially people living on fixed incomes who saw their real incomes and savings eroded. Success in reducing inflation only came in the mid-1980s when central banks were given political support to aggressively fight inflation,” she said.