supply page 3 sur 14 disruptions in 2021, and on top of the sharp increase in energy prices this year after russia ’ s invasion of ukraine. when central banks are faced with temporary supply shocks, they are often supposed to “ look through ” the immediate effect and extend the horizon over which inflation returns to target if necessary. but due to pressures along the pricing chain, inflation has not only heightened, it has broadened into industrial goods and services. in the euro area, core inflation has been above 2 % since october 2021 and above 4 % since july 2022. another feature of the inflation shock we are facing is its persistence. this may affect inflation expectations and lead to a de - anchoring. current inflation levels require that we clearly show our monetary determination. we know, though, that the significant changes in monetary policy we have taken already will take at least a year or more to affect the economy. but it is our clear forecast and will to bring inflation back towards 2 % within the next two to three years. i am not convinced either by the trade - off between fighting excessive inflation and avoiding a recession. there are at least three clear reasons to prioritize price stability ( i ) legal : our mandate is focused on price stability ( ii ) political : our fellow citizens care first and foremost about inflation and its impact on purchasing power ( iii ) economic : entrenched inflation would mean less confidence, higher risk premia, and greater price distortion, and hence less long term growth. furthermore, the euro area economic starting point remains relatively favourable this year. the labour market is very strong with many vacancies and the unemployment rate stood at a historical low of 6. 6 % in july and august. annual gdp growth in 2022 is expected to reach 3. 0 % according to the latest imf projection – almost twice the us growth -, although a slowdown is forecast in the second half of the year after the robust growth of the first semester. we cannot exclude a temporary recession next year, especially in case of even more severe developments in the gas and electricity markets : but a short - lived – and limited – recession would be less detrimental than a protracted stagflation. ii. no forward guidance but some milestones on the monetary path page 4 sur 14 at its meeting in july, the ecb governing council formally ended its forward guidance on policy rates and switched to meeting - by - meeting decision - making. this move is appropriate, as we live through especially

columbia university, new york, 11 october 2022 « what monetary policy narrative after forward guidance? » speech by francois villeroy de galhau, governor of the banque de france page 2 sur 14 ladies and gentlemen, dear students and professors, i am very grateful to dr. patricia mosser for the invitation to speak at columbia university. i already had the honour of delivering a speech here in april 2017, and it is great to be back. the current context is obviously quite different from five years ago : today we face too high inflation – compared with too low inflation in 2017 –, and we are navigating through a geopolitical environment that looks unprecedented in its uncertainty. due to this uncertainty, binding forward guidance from central banks appears less relevant, and has rightly been put aside in the recent past. but this is not an argument for returning to the secrecy that characterised central banking until the 1990s. one of the most topical questions for central banks is therefore how to ensure a “ new predictability ”. i indeed, not having forward guidance does not mean, cannot mean, not having a narrative and a monetary strategy. let me elaborate on this today, first laying out the reasons why we have to act in a determined way to deliver our 2 % inflation target ( i ), then proposing some milestones on our normalisation path ( ii ) and finally shedding light on one sensitive coordination issue ( iii ). i. we have to act in a determined way to deliver our 2 % target inflation has reached levels that we have not seen in decades in the united states and in the euro area. hicp inflation in the euro area was 10. 0 % in september 2022 and excluding energy and food reached 4. 8 %. we decided to frontload our monetary policy normalization in september with a 75bp increase in all our policy rates, taking them into positive territory for the first time since july 2012. when anyone acts fast, there are always people to ask whether they are overreacting or could wait and move more slowly. for some in europe, there would be two arguments in favour of inaction or at least caution : namely the supply - side origin of the shock and the risk of a recession. let me tell why i don ’ t think such fears should derail us from our normalisation course. on the nature of the inflation shock, there is obviously a significant energy and supply component in the current euro area inflation, reflecting pandemic - related