Bernanke calls for policy independence of central banks+

TOKYO, May 26 Kyodo - U.S. Federal Reserve Board Chairman Ben Bernanke on Wednesday called for central banks to decide on key policy decisions independently from governments, warning that any political pressure could make economies unstable and produce
inflation.

''Political interference in monetary policy can generate undesirable boom-bust
cycles that ultimately lead to both a less stable economy and higher
inflation,'' the Fed chief said in a speech at an international conference in
Tokyo.
At the same conference hosted by the Bank of Japan, BOJ Governor Masaaki
Shirakawa underlined the importance of ensuring price stability, but added that
central banks should not feel too constrained by ''short-term developments'' to
achieve stable macroeconomic growth.
''Price stability is certainly one important element in achieving a stable
financial environment. That is, however, not the sole factor,'' Shirakawa told
senior officials from international financial institutions and economic
scholars.
In the conference on the future of central banks in a globalized society,
Bernanke said, ''Undue political influence on monetary policy decisions can
also impair the inflation-fighting credibility of the central bank.''
''The costs of undue government influence on the central bank's quantitative
easing decisions could be especially large, since influence might be tantamount
to giving the government the ability to demand the monetization of its debt, an
outcome that should be avoided at all costs,'' he said.
Echoing Bernanke's view, Shirakawa said that central banks tend to think that
it is up to governments to take ''unconventional policy measures'' to address
an economic crisis, but that if policy decisions by the government are delayed,
central banks could be put ''into a difficult position.''
Bernanke stressed that a decision on raising the purchasing of government debt
by a central bank should also be free from political interference, saying,
''Abuse by the government of the power to issue money as a means of financing
its spending inevitably leads to high inflation and interest rates and a
volatile economy.''
The comments by the two central bank chiefs came after two rounds of additional
monetary easing steps by the BOJ since December last year and pressure from the
government to increase its purchase of government bonds as part of efforts to
pull Japan out of deflation.
But Bernanke also said central banks ''must meet their responsibilities for
transparency and accountability'' over monetary policy, or the process of
setting interest rates.
Bernanke, who is visiting Japan for the first time since February 2008 when he
attended a Group of Seven meeting in Tokyo, made no comments on near-term
economic prospects or monetary policy targets.
==Kyodo