European Central Bank President Lagarde says central bank independence depends on credibility and outlines three safeguards

The European Central Bank published a speech by President Christine Lagarde arguing that central bank independence can no longer rely on legal protections alone and must be sustained by credibility earned through action. Speaking at the meeting of Francophone Central Bank Governors in Phnom Penh, she said the ECB’s experience through the sovereign debt crisis, the period of very low inflation and the 2022 inflation surge showed that independence is tested when policy choices are politically difficult, and that trust is built when a central bank adapts its tools within its mandate and preserves price stability. Lagarde said the operating environment has become more demanding because supply shocks are more frequent, fiscal space is tighter due to defence, climate, digital transition and ageing pressures, and trust in public institutions is eroding. She cited evidence that de facto independence has deteriorated in almost half of central banks in countries accounting for 75% of global GDP, and set out three conditions for safeguarding independence: a clear mandate with price stability as the primary objective, direct communication and accountability to citizens to keep inflation expectations anchored, and policy room preserved by fiscal responsibility and a resilient financial system across banks, non-bank intermediaries and markets.