ECB’s Villeroy Urges that Monetary Policy Stay on its Price Stability Course

27 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member François Villeroy de Galhau on Tuesday said that monetary policy should stick to its price stability course so as to avoid adding yet more uncertainty to financial markets.

In a hearing before a commission of the National Assembly, the lower house of the French Parliament, Villeroy, who heads Banque de France, said that inflation was taking on a more self-sustaining nature and was being seen on a broader base rather than being due just to imported energy.

‘It is this more “domestic” inflation for which central banks are responsible, and which they must not allow to slip and persist’, he said. Monetary authorities were ‘firmly committed’ to restoring inflation of around 2% in the medium term, he said.

‘This is why we are moving forward in a determined but orderly fashion on the path to monetary normalisation’, he continued.

‘This monetary normalisation is not “paid for” at the cost of a recession – this, as I said, is not currently the most probable scenario, and would in any case be limited and temporary – , nor of unemployment rising too quickly – the employment situation remains favourable’, he said. ‘But the later we react to this disease of too high inflation, the more difficult the remedy will be.’

In the context of increased market volatility in recent days, Villeroy urged ‘not to add uncertainty to uncertainty, and to keep our course: the course of a European monetary policy of price stability; the course of a French budgetary policy anchored on a standard of expenditures really held, and allowing the deleveraging in the long term.’