BC autonomy does not mean isolation, says BIS – 05/19/2023 – Market

Minister Fernando Haddad (Finance) received this Friday (19) the support of the director general of the “central bank of central banks” when he said that the rapprochement between the Central Bank and the Ministry of Finance does not affect the autonomy of the monetary authority.

Agustín Carstens, director general of the BIS (Bank for International Settlements), said that autonomy does not mean isolation and agreed that the BC’s monetary and Treasury’s fiscal policies are related.

The statement was made after Haddad’s speech at the opening of an event organized by the Central Bank, which also brought together presidents and former presidents of central banks from several countries, including Brazil.

“Let me address a common misconception. Central bank autonomy has been a key development on the road to price stability. But autonomy does not mean isolation. A dialogue can, and I would argue should, exist between central banks and government ministries. farm,” said Carstens.

“Monetary and fiscal policy are inherently linked. They affect each other. Together they affect economic and financial conditions and therefore people’s well-being and companies’ investment plans. Autonomy actually broadens the scope for this dialogue to take place, as Minister Fernando Haddad said a few minutes ago.”

At the opening of the event, Haddad said that the Lula government is making important gestures for institutionality in Brazil, as it is the first government to inherit a president of the Central Bank appointed by his predecessor. The minister also once again defended the coordination between fiscal and monetary policy so that the country can grow above the world average in the coming years.

Carstens also stated that the success of public policies depends on the credibility of the authorities, giving the example of trust in money, in the regulation of the financial system and in the action of central banks to control inflation.

If the public trusts the central bank to do whatever is necessary to keep inflation on target, then the target, rather than current inflation, becomes the benchmark by which people make their decisions.

He also stated that the financial system in Brazil was not affected by the crises in the global financial system of 2008 and 2022, thanks to the work of the managers of these institutions and the supervisory bodies. “While this is good news, it should not be cause for complacency.”