MNI POLICY: Draghi Warns Central Bank Independence Threatened

By Luke Heighton

     FRANKFURT (MNI) - Central bank independence is under threat, ECB President

Mario Draghi said today, as governments are increasingly prepared to favour

short-term objectives over price stability.

     Draghi warned of a return to 1970s-style inflationary and price instability

if monetary policy were to become subject to political pressure.

     His remarks come amid growing concerns over the destabilising effect of

Italy's budget negotiations with the EU, and in the wake of President Donald

Trump's recent attack on the Fed,

     Here are key points from the speech at the National Bank of Belgium in

Brussels:

     -- Outside the eurozone we see concerns being publicly expressed about

whether the central bank should pursue a normalization path in the face of

rising inflation.

     -- Credibility hinges on independence: central banks should not be subject

to fiscal or political dominance and should be free to choose the instruments

that are most appropriate to deliver their mandates. It is crucial that central

banks remain transparent and accountable.

     -- Some observers now query whether the circumstances that justified

central bank independence still exist - and whether the grounds for delegating

monetary policy to independent authorities remain valid.

     -- In the long term, monetary policy is not an important factor for the

distribution of resources within societies. Distribution is affected more by

low-frequency developments such as structural and institutional factors, or

fiscal policies such as tax regimes.

     -- Evidence shows that the unconventional policies adopted by central banks

have eased financing conditions, boosted output and stabilized inflation.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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