The impact of independent central bank on the economy in the fall of price of commodities.
In recent years the price of many commodities has fallen especially in the energy sector. The fall in the commodity prices in crude oil and natural gas have put the economy of many countries in a vulnerable situation. Reduction in the price of commodities reduces the economic performance of the countries that are highly dependent on natural resources. The Central Bank Independence plays an important role in reducing the impact of economic downfall of a country by observing and predicting the international economic performance. The independent central bank can reduce the interest rate efficiently rather than waiting for the instruction by the government. It is essential to understand the difference between central bank independence and monetary policy independence. The central bank independence (CBI) is when central bank of the certain country sets monetary policy independently without being influenced by the government. However, the central bank has other duties from monetary policy such as monitoring the regulations and supervising the banks. According to the lecture given by Fisher (2015) on the central bank, independence distinguished the difference between central bank goal independence and the instrumental independence in detail.
Reduced interest rate by the independent central bank can stimulate the production within a country which can reduce the dependence on an imported goods and services. An independent central bank can reduce the interest rate by keeping stable inflation rate which would rise from a shortage of foreign currencies which is earned from selling natural resources. The earning from export reduced for countries that are highly dependent on the price of commodities. The quantity demanded are still the same but due to high quantity of supply the price of the gas and oil reduced. The price of coal has also reduced due to a reduction in the alternative goods. The countries that are highly dependent on natural resources are selling at the same rate but the returns have reduced due to the low price. Reducing the interest rate by the central bank will reduce the cost of borrowing, which stimulates the production of goods and services within a country. The countries that are highly dependent on natural resources will find an alternative way to increase the production by reducing the interest rate. The fall in the price of oil and gas in 2015 has a direct impact on oil and gas producing countries such as Nigeria, Qatar, Malaysia and Saudi Arabia.
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