South Africa’s top monetary policy maker spoke for his peers around the world last week when he declared that central-bank independence from political meddling is no longer just an “emerging market phenomenon.”
The U.S. Federal Reserve, Bank of England and European Central Bank are feeling the heat from elected lawmakers, while India and Turkey are among others under pressure.
The threat could have real economic consequences: A study in the 1990s by economists Alberto Alesina and Lawrence Summers concluded that independent central banks were better at controlling inflation without damaging output or employment.
Financial markets risk being unnerved if investors suspect central banks will bow to lobbying and take their eye off inflation. That could push up long-term interest rates. Conversely, officials might feel the need to stamp their authority by raising short-term borrowing costs higher than they would otherwise.
Here’s a rundown of the monetary institutions getting unwanted attention from politicians.
Almost a year into the job, Jerome Powell has run into increasingly harsh criticism from Donald Trump, the first American president in two decades to lash out at the Fed.
Just in the past month, Trump said he’s “not even a little bit happy” about his choice of chairman, and called the Fed a “much bigger problem than China.” The central bank has raised interest rates eight times since December 2015, from near-zero, and is teeing up another hike in December.
While Powell has recently sounded more open to slowing the pace of tightening next year, Fed officials insist they won’t succumb to political pressure and will rely on economic data to guide them.
Turkish President Recep Tayyip Erdogan is at the forefront of attacks on central-bank independence, loudly and frequently proclaiming his unorthodox views. He’s called for lower interest rates for years, saying — in contradiction to textbook economics — that would curb inflation.
The central bank has often ignored him, raising rates massively when forced by markets, but it’s also been slow to act. The result is inflation at about five times the institution’s target, and a series of policy innovations that have frustrated investors.
Prime Minister Narendra Modi’s administration has pressured the Reserve Bank of India to hand over more of its surpluses to bridge a budget gap and possibly fund spending before next year’s election. The government has also threatened to invoke a never-used law to provide more liquidity and ease lending rules amid a shadow-banking crisis, though it later said the RBI’s autonomy is “an essential and accepted governance requirement.”
The RBI warned that any threat to its autonomy will invite the wrath of financial markets, but ceded ground last month by allowing the government to review its capital structure. The government now wants to review its governance structure.
Pakistan’s government plans to make the central bank report any planned currency adjustments to a committee, a move seen aimed at curbing the regulator’s independence as the nation negotiates an International Monetary Fund bailout.
Legislation requiring the Reserve Bank of New Zealand to adopt a dual mandate of employment and price stability is expected to become law in April. Opponents say that could give the finance minister the power to influence which of the mandates the central bank should prioritize, undermining its independence.
The minister also gains the authority to appoint a new monetary policy committee, which will include external members, and creates the role of a non-voting Treasury observer to sit in on all committee decisions, raising the risk of too much influence.
BOE Governor Mark Carney has long faced aggressive criticism from pro-Brexit politicians, who accuse him of overly pessimistic pronouncements and bias against the decision to leave the European Union. Lawmaker Jacob Rees-Mogg calls the governor the “high priest of project fear.”
Carney denies the charge, but was assailed again recently after the BOE published scenarios showing that a no-deal Brexit could unleash a savage recession and collapse in the pound.
ECB President Mario Draghi is frequently lambasted by German politicians over his ultra-loose monetary policy, which they worry robs the nation’s savers to the benefit of more-profligate member states. More recently he’s been attacked by Italian politicians, including Deputy Premier Luigi Di Maio who said he’s “poisoning the climate” by weighing into the debate about the nation’s budget.
National central banks within the euro area are also being hit. Italian Governor Ignazio Visco, who overcame a bruising public debate in 2017 to win a second term, is embroiled in the debate over the the populist government’s spending plans.
The Austrian government’s plans to split off bank supervision prompted Governor Ewald Nowotny to complain about “a tendency to treat the national bank like a subordinate.” The government-appointed deputy president of the central bank further ruffled feathers by saying the next governor’s stance on monetary policy should be different to Nowotny’s.
Politicians have targeted Bank of Greece Governor Yannis Stournaras several times for alleged wrongdoings including a case involving Swiss drugmaker Novartis AG — which he says was concocted to force him out — and accounts of inaccuracies in his property declarations.
Cyprus’s government started proceedings in 2015 to dismiss Chrystalla Georghadji, alleging a conflict of interest for not declaring that her estranged husband represented an investor in a defunct bank that was suing the state and the central bank. Georghadji succeeded Panicos Demetriades who resigned after months of political pressure.
Latvian Governor Ilmars Rimsevics is the target of a corruption investigation that saw him briefly detained. He’s been barred from his office since February, and the restrictions on him have pitted the ECB and the Latvian government against each other at the European Court of Justice. Rimsevics says the case was mounted by well-connected banks angered by his anti-money-laundering efforts.
Bostjan Jazbec resigned as Slovenian governor in May after coming under pressure for his role in the 2013 bank bailout, and a raid on his office and an attempt to pass a law to audit the central bank were condemned by the ECB as infringing on its independence. A successor has yet to be appointed, leaving Slovenia as the only euro-area member without a representative on the ECB’s rate-setting body.
The Swiss National Bank is frequently in the crosshairs, partly because its balance sheet has ballooned to 120 percent of economic output. Lawmakers regularly suggest its reserves be turned into a sovereign wealth fund and national plebiscites have — unsuccessfully — targeted its gold holdings and even questioned the fundamentals of banking.
A parliamentary committee is looking over Sweden’s central-bank framework and will report back in May. It’s the broadest review since the act was changed in 1999 to enhance independence.
President Andres Manuel Lopez Obrador is poised to reshape Mexico’s central bank by naming four of its five board members by 2021, halfway through his six-year term. His pick for deputy governor, Gerardo Esquivel, sparked some apprehension over views including the defense of a dual mandate of targeting inflation and growth.
One monetary institution may actually be about to get a break from politics.
Brazil’s central bank has enjoyed de-facto autonomy to decide on interest rates, but no legal guarantees protecting its board against political meddling. That may change in the next few months after President-elect Jair Bolsonaro decided to sponsor a bill granting formal autonomy to the institution. The central bank chief could no longer be fired by the country’s president and board members would have four-year terms approved by the Senate.