ECB’s Villeroy: Revised Forward Guidance Means We Need a Close-Up View of 2%

23 July, 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau said Friday that the ECB’s revised forward guidance was a ‘strong answer’ to the question of how the ECB would achieve its new inflation objective.

In an interview with French business news channel BFM Business, Villeroy, who heads Banque de France, said that one of the implications of the revised guidance is that for the ECB to contemplate raising interest rates, it would need to have ‘a close-up view of 2%, if I may say so, with the naked eye and no longer with a telescope’, meaning that 2% ‘has to happen quite early in our projection horizon’.

‘So I'm going to be very concrete, this horizon is two to three years’, he said. ‘In practice, this means 12 to 18 months.’

Additional accommodation was not on the table at the Governing Council meeting, he emphasised, but rather, the ECB can now be patient in its accommodative stance, meaning that ‘we can wait long enough for inflation to be visible to the naked eye, as I was saying, for 12 to 18 months.’

The amount of accommodation at any moment ‘will depend on the economic situation’, he added.

Current euro area inflation is only temporarily near target, he said. ‘So today, it is totally justified to keep an accommodating monetary policy.’

The Governing Council on Thursday did not discuss its purchasing programmes, he said. ‘We will see about the purchasing programmes in the autumn’, he said, observing that ‘we still have three monetary policy councils until the end of the year. That leaves time to look at things.’

In addition to purchasing programmes, in the autumn the Council would also consider the forward guidance around these, he said.