François Villeroy de Galhau: How central banks should face instability and fragmentation

Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Macro Week 2023, Peterson Institute for International Economics, Washington DC, 12 April 2023. 

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

Ladies and Gentlemen,

I am delighted to be here in person at the Peterson Institute for International Economics. I would like to warmly thank Adam Posen for the invitation to speak at this edition of Macro Week. Two years ago, I had the opportunity to discuss (online) "how to revisit central banking and financial stability". Some of my remarks will no doubt echo these thoughts, however in a quite different context: shifting geopolitics, reignited inflation and some turmoil in the banking sector have since entered the arena. Today, I would like to provide a European perspective on both risks of instability and fragmentation, starting first with the conduct of monetary policy in this unstable economic landscape (I), before turning to the roads forward on a fragmented international stage (II).

I. Monetary policy facing the risk of price and financial instability

A. The ECB shows resolve in bringing inflation back to target

Against the backdrop of the invasion of Ukraine, inflation in Europe accelerated sharply last year due to soaring energy and commodity prices. There has partly been a symmetric phenomenon: easing energy prices have led to a decline in headline inflation over the last few months, from a peak of 10.6% in October to 6.9% in March.