ECB’s Villeroy: Inflation to Settle Close to Target, Monetary Policy to Normalise Accordingly
4 January 2022
By David Barwick – FRANKFURT (Econostream) – Inflation will ultimately settle close to the target of the European Central Bank, entailing a gradual normalisation of monetary policy, Governing Council member François Villeroy de Galhau said Tuesday.
In a New Year’s speech posted online, Villeroy, who heads Banque de France, said that inflation was ‘now close to its peak in our country (December showing first signs of stabilisation) and in the euro area.’
‘While remaining very vigilant, we believe that supply difficulties and energy pressures should gradually subside over the course of the year’, he continued. ‘We should then return not to the low inflation of the past, but to a new inflation regime close to our 2% target, with monetary policy normalising in stages accordingly.’
Banque de France’s next monthly survey of more than 8000 firms will provide insight into the effects of the fifth wave of the pandemic, he said.
‘We remain confident that they will be relatively limited: we have learned over the past two years that every Covid wave, however serious, has diminishing economic effects’, he said.
The central bank’s latest forecasts implied that even with major new public health measures, France would get back to the GDP trajectory it would be on without the pandemic, he said. Such measures, if introduced, ‘would admittedly reduce average growth in 2022, but this should be fully offset by additional growth in 2023.’