Central banks need to preserve their loss absorption capacity, but the very fact of suffering protracted financial losses, even though the reserves remain ample and can easily absorb them, implies reputational risks that could undermine the confidence of the public in the central bank’s ability to deliver on policy targets, and could lead to government interference.10 Central banks have deployed a broad set of tools to safeguard their financial autonomy and credibility.
This, in turn, helps to create a form of "automatic stabilizer" operating in financial markets; as the economy is buffeted by shocks, market participants anticipate how the central bank is likely to move short-term interest rates in the future, and these expectations are then immediately reflected in movements in long-term interest rates that help to counteract the effects of the shocks.