Monetary policy will tighten further in the face of inflation, according to the governor of the Banque de France
After having already raised its key interest rates four times since the summer, the European Central Bank (ECB) is ready “to go further to defeat inflation”, even if the objective “is obviously not not to cause a recession”, warned Saturday in an interview with the Journal du Dimanche the governor of the Banque de France.
“We have acted quickly and strongly since the spring, when we saw that imported energy inflation was spreading to the rest of the economy”, defended François Villeroy de Galhau, while the rise in prices in the euro zone reached 10.1% in November over one year.
“Our interest rates have therefore already been raised four times in a row, from -0.5% to 2%. And we are ready to go beyond that to defeat inflation, even if our objective is obviously not not cause a recession”, he explained, noting that “for an anti-inflationary monetary policy to produce its effects” it takes between 18 months and two years.
François Villeroy de Galhau thus finds himself fully aligned with the positions of ECB President Christine Lagarde, who on Thursday multiplied the formulas to indicate that monetary tightening was not over: “we still have a long way to go”, “we have to go further”, or even “we are in a long game”.
Like its American and British counterparts, the European Central Bank has however slowed the pace somewhat, proceeding on Thursday to an increase of half a point, following two increases of 0.75 point in September and October.
According to Mr. Villeroy de Galhau, “controlled inflation will help restore confidence. It will also help resume growth in household purchasing power, which between 2015 and 2021 had grown by an average of 8%”.
The Banque de France estimates that following a peak in the first half of 2023, price increases will fall back to 4% at the end of next year, to return to around 2% towards the end of 2024-25.