Thomas Lyons 
Central Bank of Ireland Governor Gabriel Makhlouf has acknowledged that central banks around the world have lost a degree of trust from the public. He believes that this is due to central banks not explaining their decisions and reasoning properly, particularly in regards to rising interest rates. Makhlouf, who is also a governing council member of the European Central Bank (ECB), made these comments at a conference where he was asked about trust in central banks. He noted that while this loss of trust does not affect his thinking on monetary policy, central banks need to explain their decision-making more clearly to the public.
Makhlouf’s comments come as the ECB continues to raise interest rates in an attempt to manage inflation. Since July 2018, the ECB has raised interest rates by 3.75%, with more hikes expected in the coming months. Makhlouf warned that fragmenting global trade could lead to significant effects on inflation. Changes in global trade patterns and shifts in supply and demand could lead to sudden and unpredictable changes in the price of goods and services, making it difficult for central banks to manage inflation. This could require them to adjust interest rates more frequently or aggressively than they would otherwise.
Makhlouf also noted that there has been a narrative going around that countries would be better off reducing their exposure to possible foreign shocks by taking back production that had moved overseas as a result of globalisation. However, he added that the International Monetary Fund (IMF) and other international institutions are warning that there are potentially considerable negative effects from a fragmentation of trade along geopolitical lines. Various studies have shown that the deeper the fragmentation, the larger the cost. If there is a severe fragmentation that also affects technological diffusion, the loss of economic output is substantial at between 8% to 12% in some countries.
In order to rebuild trust with the public, Makhlouf believes that central banks need to explain their decision-making more clearly and communicate with people and communities in a language they understand. He said, “We need to be explaining what we’re seeing and why we’re making the judgments we are, and we need to talk to people and communities in a language they understand and I think in the end that’s how you rebuild trust. I think we can do it as central banks.”
Makhlouf’s comments highlight the importance of transparency and communication in central banking. As central banks continue to navigate complex economic and geopolitical issues, it is crucial that they are able to explain their decisions and reasoning to the public in a clear and accessible way. By doing so, they can help to rebuild trust with the general public and ensure that their policies are understood and supported.
