FRM Part II · FRM Exam Part II · Monetary and Fiscal Policy: Safeguarding Stability and Trust
Which institutional feature most directly supports a central bank's ability to meet its price stability mandate free from short-term political pressure?
Operational independence combined with clear objectives and public accountability best lets a central bank pursue price stability without short-term political pressure. Obligations to buy government debt, government approval of rate decisions, and annual reappointment all increase political influence and weaken credibility.
- AOperational independence, with clear goals and accountability to the publicCorrect
- BObligation to buy all government bonds issued at auction
- CGovernment approval required for every policy rate decision
- DAnnual reappointment of the governor by the finance ministry
Explanation
Operational independence with clear goals and accountability insulates policy from short-term political pressures while preserving legitimacy. The other options all increase government influence and weaken credibility.
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