As Mervyn King, the retiring Governor of the Bank of England has argued, the expansion of mandates to include financial stability makes independence harder to define. Financial stability oversight is essentially a shared responsibility with other organs of government. Furthermore, it could at times involve the use of tax payers’ money to bail out institutions in difficulty.
But more generally, macroprudential policies could have highly distributive impacts. In conclusion, central banks are facing a difficult environment as the weight of expectations on them increases. The crisis has led to extraordinary measures being taken by central banks. There is little doubt that current levels of real interest rates, both abroad and in South Africa, are not the long run “new normal”.