The central bank that became independent

The reform of the National Bank after 2015 is the least visible and most consequential economic change of the period, and its effects reach a company that has never thought about monetary policy.

What changed inside

The bank stopped financing the budget deficit by creating money. That single change is what makes an inflation target possible at all, because a central bank that must print for the treasury cannot control prices.

The exchange rate was floated. A managed rate had been defended repeatedly with reserves and had collapsed repeatedly, each time producing a crisis. A floating rate moves continuously and painfully and does not accumulate a collapse.

An inflation target was adopted and published, with a forecast, a decision calendar and published reasoning.

And the banking sector was cleaned: institutions that were insolvent or could not disclose their owners were withdrawn, at enormous immediate cost.

What it means at a purchasing desk

A number to plan against. Before the target, an importer had no basis for a twelve-month price assumption other than a guess. After it, there is a stated objective, a published forecast and a track record against which to judge both.

It also ended a specific argument: a supplier claiming a price rise is inflationary can now be answered with a published figure rather than an opinion.

What made it credible

Raising rates when it was unpopular, repeatedly. Credibility in a central bank is purchased entirely with unpopular decisions and cannot be obtained any other way.

What an independent central bank means on the company side is this: when you build the annual budget you set the inflation assumption against the target rather than against the political calendar. In my planning work that was a measurable relief. And what made it credible was not the announcements but the target being met several years running.