François Villeroy de Galhau: Low rates - what are the causes and what are the effects for France?

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Paris Dauphine University/House of Finance, Paris, 9 January 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and gentlemen, dear teachers and students,

I am very happy to start the year with you here at Dauphine and to offer you my warmest wishes. The New Year is often a time to make resolutions, but it is also the perfect time to take stock. Among the surprises of 2019 was the extension of highly accommodative monetary policies when many expected - or indeed hoped? - to see a normalisation. So low rates are going to persist: "low for longer"; an increasing number of people are worried about the effect this will have on banks, insurers, savers. It is perfectly legitimate for there to be a debate around monetary policy, but the fact that even the general public is now showing an interest is something altogether new. That is why I stand here before you this evening, as one of the heads of the Eurosystem: to give an account of the causes underlying low rates - they are not just the result of monetary policy - and then to assess their consequences: the positive effects are still predominant, even if they have their limits, which I shall also talk to you about later.

I. Low rates: why?

We need to start with an admission of humility. Contrary to a widespread preconception, central banks do not bare full responsability for the low level of interest rates. The downward trajectory of global nominal rates is part of a trend that has been going on for nearly 40 years.