So even if inflation is now high, people can trust inflation to come back down to target. As a result, savers have come to demand a lower premium to compensate for expected inflation. But it is not just nominal interest rates that have fallen. If we adjust nominal interest rates for inflation and look at real interest rates, we can see that they have fallen too. Chart 2 shows the UK ten-year real interest rate, measured directly from index-linked bond prices. It is clear that the real interest rate is quite responsive to cyclical events, and that it has risen sharply over the past year. But beneath the volatility, there appears to have been a fairly steady downward trend from the 1990s at least up until the onset of the Covid pandemic. Bank of England  Page 6  Chart 2: The UK ten-year real rate has fallen over recent decades Ten-year zero coupon yield (spot interest rate) from UK index-linked gilts (a) Per cent 6  6  4  4  2  2  0  0  -2  -2  -4 1985  -4 1990  1995  2000  2005  2010  2015  2020  (a) Sources: Bloomberg Finance L.P, Tradeweb and Bank calculations. Much has been said about this trend in risk-free interest rates.
They are entirely institutionally, operationally and financially independent. 2  BIS Review 4/2006  1.2. Transparency and accountability are also essential for gaining credibility Naturally, the independence of these institutions requires transparency in their decision-making processes and accountability vis-à-vis the general public and their representatives. As regards new institutions such as the ECB, transparency is even more important for gaining credibility and building up economic agents’ confidence in the new currency. In order to establish this credibility and gain the confidence of agents, it is imperative to be understood, which in turn calls for transparency. For the sake of transparency, the Governing Council has specified and quantified its definition of price stability (inflation below but close to 2% over the medium-term). Second, the ECB has gone beyond the accountability requirements laid down by the Treaty by instituting regular testimonies by the President of the ECB before the European Parliament and regular informal meetings with the Eurogroup of Finance ministers. Another channel for transparency is constituted by the regular publication of reports on economic developments and Central Bank analysis, of the Eurosystem’s and ECB’s staff projections exercises, most prominently in the ECB’s Monthly Bulletin. Finally and most importantly, following monetary policy decisions, the President and Vice-President of the ECB hold a press conference followed by an open discussion with journalists, the transcript of which is published on the ECB’s website.