CFA Level I · CFA Level I Exam · Monetary Policy
Central bank independence is most likely strengthened when the central bank has:
Central bank independence is most strengthened by operational independence, meaning the bank chooses its own tools to reach its target. This insulates policy from short-term political pressure and improves credibility, unlike ministry control over appointments or daily government direction of tools.
- Aits governors appointed and removed at the discretion of the finance ministry
- Boperational independence to choose the tools used to reach a targetCorrect
- Cits inflation target and its tools both set daily by the government
Explanation
Operational independence means the bank chooses the instruments to achieve its goal, which improves credibility. Appointments at the ministry's discretion or government control of tools reduce independence.
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