Villeroy de Galhau outlines monetary policy path amid global uncertainty
Banque de France Governor François Villeroy de Galhau discussed the challenges of steering monetary policy in an uncertain global environment. Speaking at Sciences Po on April 2, 2026, he outlined why the current situation differs from 2022 and the central bank's path forward.
Lessons from disinflation without recession
Governor Villeroy de Galhau asserted that the current situation in 2026 is not a repeat of 2022, despite new energy price shocks.
He highlighted key macroeconomic differences, noting that euro area inflation had fallen to 1.9 percent in February 2026, significantly lower than the 5.9 percent recorded in February 2022.
Unlike the post-pandemic period, the economy is not facing strong demand for durable goods or supply chain pressures.
Furthermore, the monetary policy stance is different, with no constraints from asset purchases or the lower bound on interest rates.
The disinflation achieved between 2022 and 2025 without a recession taught two crucial lessons: not all supply shocks are equally inflationary in the long term, and central bank credibility, by anchoring expectations, allows for a more measured policy response, fostering a virtuous circle of disinflation.
Scenarios for a volatile world
Governor Villeroy de Galhau highlighted the high degree of uncertainty, necessitating the use of multiple scenarios.
He referenced the ECB and Banque de France scenarios, ranging from a temporary shock (baseline) to a severe scenario with oil prices reaching USD 145 per barrel.
Current oil prices above USD 100 per barrel place the situation closer to the intermediate adverse scenario.
He noted that financial conditions have already tightened since early March, with market rates rising and the 2-year €STR increasing by 70 basis points.
Sovereign bond spreads have widened, particularly in France, Italy, and the United Kingdom, indicating increased fiscal vulnerabilities.
Navigating the tightrope
The central bank faces a delicate balancing act: preventing inflation from spiraling while avoiding an overreaction that could further slow the economy.
While recent March figures show headline inflation climbing, core inflation in both the euro area and France remains firmly under control at 2.3 percent and 1.3 percent, respectively.
This suggests the immediate pass-through of energy shocks is contained, yet rising market inflation expectations demand utmost vigilance.