DUBLIN (Reuters) - Central banks around the world have lost a degree of trust and need to rebuild it by explaining their decision making to a wider audience and not just financial markets, European Central Bank governing council member Gabriel Makhlouf said on Tuesday.
Major central banks have been aggressively hiking interest rates to curb inflation which remains persistent. The ECB alone has raised rates by a combined 375 basis points since July and economists forecast two more 25 basis points at each of its next two meetings.
Having raised rates by the most in the ECB's 25-year history, Makhlouf, Ireland's central bank governor, said the bank had an obligation to talk to the wider community and that like institutions everywhere, it had lost some trust.
With inflation expected to run above the ECB’s target through at least 2025, consumers and investors have started to expect longer-term price growth above 2%, indicating a loss of confidence in the ECB’s ability to rein in prices. This could in turn push up wage demands, potentially setting up a hard-to-break wage-price spiral.
"I think we have lost a degree of trust... (and that affects) what I feel we should be doing with our decision making, which is we should be explaining it to more people," Makhlouf told a conference at the Irish central bank.
The question was put to Makhlouf by Cleveland Federal Reserve President Loretta Mester, who asked whether he thought central banks around the world are trusted and "if we've lost some of the trust."
"We probably need to do more in terms of thinking about the audience we're talking to," Makhlouf said.
"We need to be explaining what we're seeing and why we're making the judgements 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."