THE ROLE OF MONETARY POLICY François Villeroy de Galhau Governor of the Banque de France
Global Interdependence Center – Central Banking Series
Paris, 21 March 2016
Outline
1. What challenges do we face as central banks? a) Deflationary pressures b) which raise the risk of an unanchoring of expectations c) Is our mandate still appropriate?
2. How effective is our monetary policy? a) We have achieved tangible results since mid-2014 b) Why have we decided to do more on 10 March? c) What about the risks for financial stability?
ďƒ˜ Monetary policy cannot be the only game in town 2
1. Challenges: inflation remains too low in the euro area Harmonised index of consumer prices (HICP) in the euro area 1,2%
1,0% 0,8% 0,6% 0,4% 0,2% 0,0% -0,2% -0,4%
-0,6% -0,8%
headline inflation, euro area (left-hand scale) core inflation (excluding food and energy), euro area (left-hand scale)
Source: Bloomberg
3
1. Challenges: oil prices exert deflationary pressures
1,2%
Harmonised index of consumer prices (HICP) in the euro area and oil prices
90 €
1,0%
80 €
0,8%
70 €
0,6%
60 €
0,4%
50 €
0,2%
40 €
0,0%
30 €
-0,2% -0,4%
20 €
-0,6%
10 €
-0,8%
0€
headline inflation, euro area (left-hand scale) core inflation (excluding food and energy), euro area (left-hand scale) price per barrel of oil (right-hand scale)
Source: Bloomberg
4
2. Results: easing in borrowing conditions 4,0
%
Interest rates on new loans to non-financial corporations in the EA June 2014: launch of the credit easing package
3,5 3,0
France 2,5
Germany Italy Spain
2,0
Euro Area 1,5
1,0 Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Note: 3m moving average, excluding revolving loans and overdrafts.
Apr-15
Jul-15
Oct-15
Jan-16 Source : ECB and Banque de France
5
2. Results: stimulation of lending to the real economy Annual growth rate of loans to non-financial corporations in the euro area and in the United Kingdom 6
%
5 4 3 2
France
1
Germany
0
Italy
-1
United Kingdom
-2
Euro Area
-3
-4 -5 Source : ECB and Banque de France
6
2. Accommodative monetary policy stance in the euro area 10 March monetary policy decisions: Cut in interest rates; TLTRO 2: banks can borrow at favourable rates conditional on their lending to the economy; Asset purchase programme: +20 bn EUR per month (total 80 bn) and corporate bonds now eligible; Forward guidance: interest rates to remain at present or lower levels well beyond March 2017.
5
%
%
35 30
4
25
3
20 2 15 1
10 0,00
0
5 -0,40
-1 2008
0 2009
2010
2011
2012
2013
2014
2015
2016
ECB assets/GDP (right-hand scale) Interest rate on main refinancing operations Interest rate on the deposit facility Interbank overnight rate (EONIA) 7