ECB’s Villeroy: Willing and Able to Adjust Monetary Policy Quickly If Needed

18 January 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Tuesday said the ECB was willing and able to adjust its policy stance if high inflation didn’t subside as expected.

In a speech at a conference, Villeroy said that each monthly survey of the Banque de France, which he heads, confirms that France’s economy ‘is currently resisting Omicron and the fifth Covid wave well.’

‘[T]he fifth health wave should still not prevent significant growth in 2022, at 3.6% in our forecast’, he said. ‘The French economy would thus catch up with its previous growth trajectory in 2023 and Covid will leave few scars on the French economic fabric.’

The recovery was however causing supply problems that have led to higher prices, he said. ‘This "hump" is higher and longer than expected, but it should remain temporary: inflation in France should gradually decline over the year, falling back below 2% by the end of 2022’, he said.

‘This is a good forecast; it is obviously not a blind certainty’, he said. ‘We are keeping our eyes wide open for economic data. Should inflation prove to be more persistent, have no doubt that we will be willing and able to adjust our monetary policy more quickly, to ensure a return to our 2% objective.’

‘In the next two years, however, concerns should be reversed: inflation should normalise around a "new regime" which would not be the too-low pre-Covid inflation, but close to our 2% target’, he continued.

Growth would slow, though, falling in France back below 1.5% in 2024. Villeroy urged efforts to reach ‘a more ambitious target for potential growth, between 1.5 and 2%, i.e. a gain of half a percentage point compared to the spontaneous trend.’