[](https://www.omfif.org/2026/10/central-banks-may-soon-become-boiling-frogs/#)
[](https://www.omfif.org/2026/10/central-banks-may-soon-become-boiling-frogs/#)
#### Central banks may soon become boiling frogs
#### Absa Africa Financial Markets Index 2026 launch
#### Central bank independence in an era of financial instability
# Central banks may soon become boiling frogs
Will they stick with monetary esoterica or speak truth to power?
According to the old parable, a frog placed in tepid water that is heating slowly lingers until it is too late and boils to death. Is the parable applicable to the future of independent central banks?
Central bank independence is essential for achieving sound inflation outcomes. It is a global public good, absolutely worth preserving. But even if central banks stress that they are responsible for achieving their mandates, they do not operate in a vacuum and cannot achieve their objectives alone. Monetary and fiscal policies are interconnected, though that is no reason to compromise central bank independence.
Fiscal policy in particular is a key determinant of economic outcomes. Economies are often institutionally structured to separate monetary and fiscal policy – central banks are responsible for monetary policy; Treasuries and parliaments for budgets.
But large fiscal deficits and debt can boost aggregate demand and inflation, causing central banks to hike interest rates. They can push up yields and boost debt-servicing costs, creating political and fiscal pressures for central banks to cut rates, engage in yield curve control or bond buying, or undertake financial repression to limit debt-servicing costs. As President Donald Trump put it in a 2025 Truth Social message – ‘Fed should cut Rates by 3 Points. Very Low Inflation. One Trillion Dollars a year would be saved!!!’
Higher unsustainable rates due to poor economic policy or heightened rollover risks can create financial market instability, compelling central banks to inject liquidity to steady financial conditions despite poor fundamentals that aren’t being fixed. Political uncertainties, inflation persistence and unsustainable debt dynamics can drive up the term premium and crowd out private investment, undermining efficiency.
