Economic Buzz: Central bank independence critical to maintaining policy credibility, says IMF

IMF noted in its global financial stability report that central banks can help mitigate the risk of a sharp rise in sovereign bond yields by delivering on their mandates, preserving their independence, and communicating monetary policy decisions clearly. Communications should focus on explaining the policy reaction function, how incoming data are likely to inform decisions, and the risks surrounding the outlook, it said. Such communication could help anchor medium- and longterm inflation expectations, reduce excessive market sensitivity to individual data releases, and mitigate a source of uncertainty for bond and funding markets. Central bank independence also remains critical to maintaining policy credibility and anchoring inflation expectations, the fund further noted.

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