PARIS (MNI) – France has no plans to boost its offer of
inflation-indexed bonds significantly despite the spike in Eurozone
consumer prices, the deputy chief executive of the French Treasury
Agency (AFT) said here Wednesday.

Anthony Requin said that in keeping with its indicative financing
program, the Treasury is “committed to issue around 10% of its program
in inflation-linked bonds.” He added: “We don’t have the intention to
increase structurally the amount of inflation-linked bonds.”

Speaking on a panel at a Euromoney conference on inflation-linked
securities, Requin stressed that the phrase “around 10%” is “very
important…10% might translate to 7.5% of the program, like in 2009 or
12.1% like in 2008.”

A share of 10% to 20% of linkers in the financing program is “the
optimal level for us,” Requin said, explaining that this allows the AFT
to capture the demand for inflation-hedging instruments and to reduce
the volatility of the government’s budget balance.

If a number of years of observation showed that a larger share of
linkers would bring more benefits to the state, AFT might have the clout
to increase its linker offerings, he said, noting that there remain
pockets of resistance at high levels to such innovative products.

Ultimately, the demand of investors is the decisive factor, Requin
reminded. “Of course we are ready to meet demand,” he said, noting that
linker issuance so far this year amounts to 12.4% of the total — a
share that was skewed to the upside by the launch of a new 15-year
indexed bond in the first quarter.

Still, given the approximative 10% target in the annual financing
program, AFT would be hesitant to boost the linker share above 13%, he
added.

Requin noted that in an updated fiscal report the French Finance
Ministry will send to the European Commission later this month, the
government’s forecast for 2011 consumer inflation will be raised to 1.8%
from the previous projection of 1.5%.

Like other speakers on the panel, Requin observed that France’s
inflation is running below the Eurozone average and, notably, below the
rate in Germany. The most recent rate of 1.9% is still within the
European Central Bank’s price stability threshold of “near but below
2%,” which can’t be said of Germany at the moment.

Requin noted that there are nonetheless some pressures pushing
inflation up, which is the reason for the upward revision in the 2011
forecast of average inflation. Those pressures include both energy and
non-processed food prices, he said. Inflation might rise above 2% this
year, “but I think it will come back down below 2% because of the output
gap,” he said. Core inflation, he noted is running around 1.1%.

He noted that since the creation of the Eurozone, French inflation
has typically been below the EMU average, mostly because of higher rates
in some member countries such as Spain. In recent years, when the French
rate was above the Eurozone average, it was due to reimbursement
policies on certain medical prescriptions by the French health care
system.

“This year we are back on the more natural path, with French
inflation lower than European inflation,” he said.

[TOPICS: M$F$$$,M$X$$$,MGX$$$]