a. The UK central bank - Bank of England (the Bank) is responsible for keeping inflation low and stable. The UK Government has set the Bank a target of keeping inflation at 2%. Critically discuss what central bank independence is and why it is suitable for modern monetary policy decision. In the current case, what type of independence does the Bank of England have, and what is it meant to the Bank in terms of achieving its goals?

b. Following the spread of Covid-19 in March 2020, risky asset and commodity prices have fallen sharply, and government bond yields reached all-time lows, consistent with a market deterioration in risk appetite and in the outlooks for global and UK growth. Indicators of financial market uncertainty have reached extreme levels. Meanwhile, the UK inflation was 1.5% that is still well below the target 2%. In response to this economic condition, at its special meeting ending on 10 March 2020, the Monetary Policy Committee (MPC) of the Bank of England voted unanimously to reduce Bank Rate by 50 basis points to 0.25%. Critically discuss the central bank’s goals and functions in regard to the current case of the Bank of England’s rate cut.

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a Central Bank independence is defined as the freedom enjoyed by the monetary policymakers from dire... View the full answer