Central bank meddling alert

The decades-long era of low inflation could soon come to an end as politicians begin to interfere with the decision-making processes of central banks, according to the World Bank.

The return of high inflation was one of the main worries spelled out by the Washingtonbased institution, which predicts “darkening skies” caused by increased market volatility, trade tensions and higher borrowing costs.

So the World Bank has downgraded its forecasts for growth in the global economy by 0.1 percentage point for the next two years in its twiceyearly global economic outlook.

Worldwide, inflation has seen a remarkable decline, falling from 17% in the mid1970s to 2.5% in 2018.

However, this movement may now be reversed as cyclical inflationary pressures gather and institutions come under increasing political sway, the lender warned.

It said inflation reduction was a crucial byproduct of their independence.

World Bank chief executive Kristalina Georgieva stressed that the importance of independent central banks was a headline message.

The warning comes after public rows between central bankers and some leading politicians.

India’s central bank chief abruptly resigned in December ahead of national elections and following reports of political tensions.

Argentina lost two central bank chiefs during its currency turmoil in 2018.

President Donald Trump has also been critical of US Federal Reserve policy decisions to raise interest rates.

He condemned “normalised” interest rates on Twitter this week, saying “really good” economic numbers would be even better if he “had longterm zero interest rates to play with” as with the past administration.

The worsening economic outlook prompted the World Bank to downgrade its GDP forecast for advanced economies to 2.9%.

Georgieva said: “In comparison with our previous reports, downsides risks are more acute and we are not any longer discounting the disorderly movement of financial markets.”

The report comes a day after the surprise resignation of World Bank president Jim Yong Kim, three years before the end of his term.

Kim will be replaced on an interim basis by Georgieva when he leaves on February 1. He will be joining US private equity firm Global Infrastructure Partners. –