Banque de France Deputy Governor: Right Time to Exit Soon from Exceptional Policy Measures
26 November 2021
By David Barwick – FRANKFURT (Econostream) – The time is right for the European Central Bank to exit from pandemic-related emergency measures, though without quickly abandoning a very accommodative stance, Banque de France First Deputy Governor Denis Beau said Thursday.
In a speech at Toulouse Business School posted to the French central bank's website on Friday, Beau said that monetary policy in the current environment must avoid overreacting to transitorily high inflation, but must also remain vigilant ‘in case economic agents' inflation expectations drift excessively from the 2% target and real wages tend to accelerate beyond productivity gains.’
‘This is why the current context seems favourable to allow the system of central banks of the Eurozone, the Eurosystem, to exit soon from the temporary exceptional measures taken following the spread of the pandemic, i.e. the [pandemic emergency purchase programme] … but not to rapidly change orientation from the currently very accommodating monetary policy…’, he said.
Elevated inflation rates in France and the euro area ‘could last several quarters’, he said; in France inflation would subside to below 2% by the end of next year.
Part of the reason for high inflation has to do with shortages resulting from demand outpacing supply when the latter is also affected by constraints and relatively low inventories, he said.
‘As a result, the price increases that are mainly affecting raw materials and certain intermediate goods should fade as supply and inventories normalise in relation to demand, although this process may still take some time’, he said. ‘In other words, our central scenario is neither inflationary overheating nor stagflation.’
Beau observed that French economic activity had returned to pre-pandemic levels in 3Q, versus expectations six months ago that this would occur only in the first part of 2022.
‘Thus, we expect GDP to grow by at least 6.3% for 2021 as a whole, and by around 3.75% in 2022’, he said. ‘In the medium term, our growth forecast favours a gradual return of growth to its pre-Covid speed, i.e. between 1% and 2% for France.’