Central banks’ big challenge to safeguard independence

Central banks around the globe are faced with several challenges, such as fighting deflation, bring back demand driven growth, winding up of easy monetary policies without disrupting the financial system, and fight for its independence. While the first three could be solved by the policymakers withy monetary policy measures that the last one would require more than that. In recent days, the global central bankers have been on the defensive over attacks from the fiscal policymakers.

Federal Reserve of the United States came under sharp criticism over its use of monetary policies as they are accused of widening the gap between the rich and the poor and responsible for lower bond yields, which have taken a toll on pension funds as well as savers. Republican presidential nominee Donald Trump accused the Fed of playing politics and vowed greater scrutiny over the actions of the central bank. While Fed chair Janet Yellen defended the central bank’s independence, she was caught off guard when a member of the parliament asked questions over the contribution of money to the Democratic campaign by one of her governors.

In India, Reserve Bank of India governor, who has been called by many as a true reformist wasn’t granted a second term, which was very unusual as his views were considered less aligned with fiscal policymakers. In Germany, where ECB is headquartered, the central bank came under immense pressure and criticism from the lawmakers at Bundestag over its monetary policies. In the United Kingdom, the newly elected Prime Minister Theresa May said that central bank policies of lower interest rates and asset purchases have benefited the rich, who general hold assets and ripped the poor savers and pensioners. In all the cases, the central bankers have come out voicing their independence, whether it is acknowledged or not, that independence is clearly under threat.