François Villeroy de Galhau: A long view on monetary policy - three clarifications prompted by three challenges

Ladies and Gentlemen,

I am delighted to speak before you today on the occasion of this GIC event. As this is my last monetary speech as Governor, let me take the long view and share with you some thoughts about monetary policy over the past turbulent decade, since 2015. Central banks have been both effective and increasingly challenged. Effective, first, because they confronted the low-inflation environment prior to 2020, the deflationary threat associated with the Covid crisis, and then overcame the inflationary surge of 2022–23 without triggering a recession. Despite all these shocks, including those lastly generated by the new U.S. administration, central banks have managed to avert a return of a global financial crisis. In an environment marked by unprecedented unpredictability, they have strengthened their credibility. Ten years ago, a sentence was frequently repeated: "monetary policy cannot be the only game in town". But unfortunately, given the weakness of the other players, monetary policy remains "the first game in town." And for that very reason, central banks have been criticized and challenged on a triple front: their mandate (1), their instruments (2), and their independence (3). Today, I would like to argue that each of these challenges can lead to greater clarity and, ultimately, to a strengthening of monetary policy.