François Villeroy de Galhau: Hearing before the Finance Committee of the French National Assembly

Hearing of Mr François Villeroy de Galhau, Governor of the Bank of France, before the Finance Committee of the French National Assembly, Paris, 1 March 2023.  

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

Thank you for welcoming me to this hearing today, the first of 2023. The economic context is sending out mixed signals, with rather good news regarding economic activity, but significant inflation and uncertainty, and the Russian war against Ukraine still in the background. I will first seek to shed light on these economic signals and the resulting monetary policy developments (I), before discussing the effect of monetary policy on the financing conditions of the economy, i.e. businesses, households and public debt (II).

I. No recession, but still too high inflation

Although it slowed down - as expected - at the turn of winter 2022-23 in France and in Europe, economic activity is faring better than expected, as confirmed month after month by our monthly business survey of 8,500 companies. Average purchasing power was finally preserved in 2022. The risk of recession that was hanging over our economies can now be dismissed, barring a major global event. We will update our quarterly macroeconomic projections on 20 March. In France, growth is expected to be slightly positive in 2023 - a priori slightly higher than the +0.3% forecast in December - before picking up again in 2024.

Yet, inflation remains the main concern for our fellow citizens - and in particular the most vulnerable among them - and for us. Admittedly, it has started to stabilise, or even to fall back to 8.6% in the euro area at the end of January in the context of a slowdown in energy prices. However, the first figures for February published yesterday for Spain and France call for vigilance, and for perseverance in our monetary action: inflation persists, for France at 7.2% according to the European Harmonised Index of Consumer Prices, at 6.2% according to the national price index. According to our forecasts, it should reach its peak in the first half of 2023 and could have halved by the end of the year. But that is still too high, and core inflation, i.e. excluding energy and food, is still rising and amounts to 4.5% for France according to our estimates. The nature of inflation has indeed changed beyond the initial energy crisis: it is not only higher but also more widespread, not just imported but also domestic, not just linked to a transitory supply shock but also potentially persistent. In light of this, no one can deny that monetary policy can and must respond.