ECB’s Villeroy: Must Keep Policy Accommodative; Can Be at Least as Patient as US Fed

11 June 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said Friday that the ECB had to keep monetary policy accommodative and that the ECB could be ‘at least as patient’ as the US Federal Reserve in setting policy.

In an interview with French radio station Radio Classique, Villeroy, who heads the Bank of France, said that the upwardly revised 2021 euro area GDP growth forecast of 4.6% was ‘very elevated’. France would publish its updated projections on Monday showing ‘more growth and a little less inflation’ this year than in Europe on average, he said.

‘There is economic progress, and this is very good, but we are not at the end’, he said. ‘Inflation is climbing, but it remains below our target of 2%, even this year, when there are inflationary flare-ups’.

Another consideration is unemployment, he said. Despite recent good news on this front in France, ‘when one looks at the totality of the Eurozone, 15% of the active population remains unemployed or under-employed’, he said.

‘And therefore we have to continue an accommodative monetary policy with the objective that we have … to maintain favourable financing conditions for the totality of economic agents: firms, households and sovereigns’, he said.

‘One doesn’t change a monetary policy that works’, he said.

The situation in Europe with respect to inflation is different from that of the US, he said. ‘I think it’s important to say, because a number that was striking yesterday, that was published yesterday afternoon, was 5% inflation in the United States’, he said. This number was distorted by temporary factors such as the increase in the cost of car rentals, he said.

‘And therefore, I don’t prejudge the American economic debate – what’s the part that’s temporary, what’s the part that’s lasting?’, he said. European inflation was only 2% in May, he said, and 0.9 percentage point of that underlying inflation. Therefore, ‘that’s them, and we’re us’ with respect to inflation on the two side of the Atlantic, he said.

The ECB can therefore be ‘at least as patient’ as the Fed, ‘because the inflation situation is different in the Eurozone’, he said.

Monetary policy decisions are not taken to benefit governments or to facilitate sovereign indebtedness, he said.

In other comments, Villeroy noted that yesterday’s gathering was presumably the Governing Council’s last to take place virtually, as meetings from July would hopefully again be physical, a sign of the improved environment, he said.