Concern that emerging-market central banks are becoming less independent is unjustified, except in Hungary, where the new governor may implement the government’s “growth agenda,” Capital Economics said.
Government officials in Russia, Turkey, Thailand and Poland have recently called for lower interest rates, raising concern that politicians are seeking to undermine the autonomy of monetary policy across developing nations. Those concerns are probably “misplaced,” William Jackson, an economist at London- based Capital, wrote in an e-mailed note today.
While the global economic slowdown has prompted calls by several politicians for looser monetary policy, they may only be voicing their “grievances” because they can’t influence interest-rate policy, according to Capital. The efforts haven’t increased inflation expectations, gauged by the break-even inflation rate, derived from inflation-linked bond yields, Jackson said.
“The financial markets don’t appear to be too fazed by politicians’ calls for rate cuts,” Jackson wrote. “The bigger picture remains that emerging-market central banks are far more independent and credible than a couple of decades ago.”
The appointment of Cabinet ministers to head central banks doesn’t threaten independence in itself, he said. Mexico’s Agustin Carstens, who moved from the Finance Ministry to the central bank in 2010, is “widely respected” by investors, Jackson wrote.
Even so, the appointment of former Economy Minister Gyorgy Matolcsy to lead Hungary’s central bank is a threat to credibility, because he signaled he may disregard the bank’s inflation-targeting mandate, Jackson wrote. The selection of Matolcsy was controversial because his “unorthodox” fiscal policy “damaged investor confidence,” according to Jackson.
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