that asset purchases had powerful effects during periods of market stress. we should not expect to go back to crisis yields. as a matter of fact the term premium has been contained since the end of the reinvestments under the app ( july 2023 ) and the pepp ( december 2024 ). second, qt is completely predictable and none of the parameters have changed since last summer. for both programmes the governing council announced months in advance the date at which reinvestments would be discontinued and market reactions at that time were very muted. d ) to conclude, let me draw a few lessons regarding the use of balance - sheet tools in the future. 1 ) first, when the primary goal of qe is transmission or financial stability, there is no reason to hold the assets to maturity or to take excessive duration risk. there is no obligation to re - sell at short notice but there should be an option open at any time. more generally, qe is not necessarily the first - line instrument to restore appropriate transmission. tltros or large scale liquidity provision are other effective tools to address transmission impairments in the banking system. 2 ) second, when the goal is to ease further the monetary stance while interest rates have reached their lower bound, then we should distinguish whether we aim to provide liquidity ( i. e. volumes ) or to reduce long - term rates ( i. e. prices ). if the primary objective is to inject liquidity, it should not be done through purchases of long - term bonds, but by lending short term or at floating rates for ltros. by the way, these were a powerful and successful innovation of the ecb, not used in the us. but the initial pricing of tltro iii at quasi - fixed rates was not fully appropriate and had to be later recalibrated. “ core qe ” – i. e. purchasing and holding long - term bonds – should be used for the purpose of reducing the term premium and therefore the long - term yields. if this purpose is clear and warranted, we should admit that it entails taking page 6 sur 6 interest rate risk onto our balance sheet, and hence possible losses as we have seen recently. we should then be ready to accept such risks, while looking more closely at the average maturity of the purchased portfolio. 3 ) in our portfolio holdings, we should prioritize government and supranational bonds to limit our direct balance sheet exposure to

omfif, london – 31 january 2025 “ short - term and long - term yields : a diverging perspective? ” speech by francois villeroy de galhau, governor of the banque de france press contact : delphine cuny ( delphine. cuny @ banque - france. fr ) page 1 sur 6 ladies and gentlemen, it is a great pleasure to be in london today for this omfif meeting and i am grateful for your kind invitation. by the way, today is history for our single currency, the euro : we announced this morning a decisive step toward future banknotes. we will have to decide between two possible themes by next year : culture, with six prominent europeans, and rivers and birds. these banknotes will much better represent europe, and embody the historically high support of 81 % of european citizens for their single currency. that said, i would like to share with you some insights about two recent monetary developments. i will first comment on short - term rates and yesterday ’ s monetary policy decision ( i ) and then highlight some challenges against a backdrop of rising long - term rates ( ii ). i. on ecb short - term rates : a clear direction, and a pragmatic pace yesterday, our governing council, led by president lagarde, decided unanimously a fifth cut, and a fourth in a row. compared to other major central banks, ecb has been the earliest to cut, the lowest to go, and probably has the clearest path in its monetary course. to put it in a nutshell : as the ecb president said, we are precisely on track in our victorious fight against inflation. we know there is a discussion whether this success is the result of luck – reversal of commodity prices – or of central banks work. both, to be honest : but monetary policy played its significant part. there are different models used by various european ncbs and the ecb itself : but all of them converge to a conservative estimate of monetary policy having reduced inflation by about 2 % in 2023 as well as in 2024. looking ahead, we should be sustainably around our 2 % inflation target by this summer. the french flash inflation in january published this morning, stable at 1. 8 % and slightly lower than expected, is good news on this road : services inflation in particular seems to be receding. we see significant wage deceleration and are hence confident on core inflation decrease, including page 2 sur 6