ECB’s Villeroy: Policy Normalisation to Be Gradual; Would Be a Mistake to Decide Prematurely
10 February 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Thursday said that monetary policy normalisation would be gradual so as to mitigate the likelihood of making a mistake by deciding prematurely.
In a discussion at a Politico conference, Villeroy, who heads Banque de France, noted repeatedly that current forecasts were to be updated in March and indicated a preference to stick to ‘a very simple message: Increased uncertainty requires increased optionality in our monetary policy, and this is what we stressed in our Governing Council last week and what we will apply, implement in the next month.’
‘We happen to have our next Governing Council in March’, he said. ‘We will then update our forecasts. And believe me, one month is important, because … we can have developments on the energy front, on the geopolitical front. So our figure will be still better in one month. And then we will decide. But as I said, optionality.’
Villeroy said monetary policy normalisation would be gradual and that the fact that ECB was approaching its price stability target was ‘good news’. The sequencing of normalisation would be standard, starting with an end to all net asset purchases, followed by rate hikes and then quantitative tightening.
‘The road, the direction is very clear; the pace along this sequencing is completely open and data-dependent', he said. 'This is what we mean by optionality. And it would be a mistake in such uncertain time to make a premature decisions. So, Christine Lagarde indicated last week the direction of the journey, but we will determine the pace starting in March.’
Current elevated inflation was a hump and would subside ‘in the coming quarters, let's say, due to energy prices, due also to the easing of supply chain problems’, he said.
2022 economic growth would be ‘at least 3.6% in France, because we have good results for the first quarter’, he said.