BoE wants to remain independent – Governor Gears wants reform | 08/04/22

The head of the British Central Bank, Andrew Bailey, stressed the importance of the independence of the Bank of England in the face of reform proposals from politicians.

He said in the press conference that followed the interest rate decision on Thursday that it is very important to have an independent central bank. The BoE chief said it was a carefully constructed model that has served very well. He was responding to the plans of Liz Truss, the favorite in the race to succeed outgoing Conservative Prime Minister Boris Johnson. Truss wants to put the 25-year-old mandate, which has made the central bank independent of politics, to the test.

The model, devised by then-Labour Treasurer Gordon Brown, allows the central bank to set interest rates at its own discretion in whatever method it sees is most appropriate to meet the government’s inflation target. The central bank has been criticized several times among conservatives for responding too slowly to the rapidly rising cost of living in terms of monetary policy. Public satisfaction with the Bank of England is at an all-time low.

clear direction

Truss failed to provide any details on what exactly a review of the BoE’s mandate should include. It is about a “clear direction” for monetary policy. Attorney General Suila Braverman, who supports Truss in the Conservative Party’s intra-party race for government, said it was now time to examine whether delegating was still the right solution. Independence should not be withdrawn. “But there are many other models around the world where central banks have varying degrees of independence in terms of monetary policy,” she told Sky News.

Truss, who according to opinion polls is ahead of former Finance Minister Rishi Sunak, has cited Japan as a role model in the past. There is a radically loose monetary policy. Inflation in Japan is relatively low, and Britain can learn from it. Michael Saunders, a senior member of the Bank of England, had rejected Truss’s plans. The UK monetary policy framework must remain intact, after all, the credibility of the central bank is at stake.

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