The direct exposure of the French financial sector to Russian assets is contained: the liabilities of French banks vis-à-vis Russian banks account for less than 1% of their total international liabilities, and French insurers’ investments in Russian securities amount to just under EUR 500 million. The withdrawal from investments in Russia was admittedly tricky, but orderly. The conflict could have more of an impact via indirect channels, including the strong tensions in global commodity markets. For the time being, the consequences of these market movements on the French banking sector have been kept under  Page 7 of 8 control. However, the ACPR remains fully mobilised in monitoring any potential financial risks that might emerge. More broadly, the macroeconomic and financial environment has evolved significantly since last year, and the Ukraine conflict has exacerbated the inflationary pressures that were already visible at the end of 2021: we are naturally keeping a very close eye on this, like our fellow citizens. The latest inflation figures for May, for France and the other countries, confirm a rise that we were already expecting, and the need for a gradual but resolute process of normalisation. We shall take a decision at our Governing Council meeting next week, which will be in line with recent comments by the President of the ECB. After having for years listened to complaints about how low interest rates were weighing on banks and insurers, we might have expected few to voice concerns now about a rise in rates.
One year ahead, the forecast is for an inflation rate of 1.6%, which will accelerate gradually until it reaches the inflation target in the first quarter of 2005 and goes up to 2.8% two years ahead. Subsequently, inflation will continue to gain pace if the forecast assumptions hold, including an unchanged monetary stance. Such forecasts are inherently prone to uncertainties, which in the present forecast in the short run largely involve exchange rate developments, as always. In fact the exchange rate has weakened since the forecast was made. A delay in construction work for the Norðurál smelter expansion could reduce domestic demand and thereby dampen domestic inflationary pressures. Offsetting this, the króna could probably weaken, as we are seeing now with a partial reversal of expectations about currency inflows for these investments. The uncertainty about the global economic outlook and the pessimistic tone in the first half of this year appear to be abating, at least in the US, even though the prospects in Europe are not promising. As I mentioned earlier, the policy interest rate is the Central Bank’s main instrument for attaining its inflation target. The Central Bank last changed its policy rate on February 10 with a reduction of 0.5 percentage points to 5.3%. The Governors of the Central Bank of Iceland have not considered that there are grounds for altering interest rates now, given the analysis and inflation forecast that I have outlined here.