Christian Noyer: “Noyer heralds new era for eurozone and for France” – Interview in Euroweek Interview with Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, in Euroweek “France in the Capital Markets”, 25 February 2013. *  *  *  EUROWEEK: You were frequently quoted in 2012 as saying that the eurozone was moving in the right direction. Do you feel vindicated by the recent strength of the euro and the performance of the eurozone’s financial markets? Noyer: Things have clearly improved, but this should not come as a surprise. It’s clear that markets lagged a bit before taking stock of what has happened, but looking back, enormous progress has already been made on all levels. This is true in terms of policies aimed at the restoration of sound public finances in many, if not all, eurozone countries as well as in the field of structural reforms. For example, we have seen very extensive progress in areas like pension reforms in France and Italy, banking reform in Spain and labour market reforms across much of southern Europe and France. We have also seen great progress in terms of surveillance – not just surveillance of fiscal policies, which is a must in the context of the European monetary union, but also surveillance of competitiveness which is the basis for structural reforms.
As a result, central banks tend to prefer a monetary policy strategy that lies somewhere between these two extremes, avoiding excessively large interest rate adjustments but not hesitating to adjust when this is called for. The Riksbank normally formulates monetary policy with a view to inflation one to two years ahead. This unfortunately means that the repo rate has to be set with the aid of forecasts and forecasts can err. Moreover, there is always the possibility of price shocks that are a-cyclical but still affect the rate of inflation. A forward-looking policy has the advantage, however, of permitting an implementation that is smoother yet firm. The Riksbank reacts to the inflation forecasts in a determined manner but as the forecasts include an assessment of the extent to which inflationary impulses are transient, over-reactions are avoided. The supply shocks I referred to earlier as having occurred during the past year are examples of price fluctuations that, with the monetary policy strategy the Riksbank has chosen, can occasion deviations from the inflation target. This is not the first time inflation has been affected by occasional factors. In the late 1990s, for example, successive deregulations of electricity and telecom markets resulted in deviations from the target, the difference being that at that time the gap was on the downside. What has happened now is the opposite. With our monetary policy strategy, this is a natural case of striking a reasonable balance between maintaining the fixed value of money and avoiding excessively large fluctuations in economic activity.