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Lagarde: Could Deploy New Instruments To Address Fragmentation


The Q&A with Lagarde begins, and she highlights that the ECB could potentially deploy "new instruments" to ensure there is no fragmentation in terms of monetary policy transmission. But worth noting that periphery EGB spreads are widening further on the comments, perhaps due to a lack of hoped-for specifics.

  • Q: Is there a difference between the euro area and other economies now with respect to monetary policy?. Has the discussion at this meeting considered at fragmentation risks?
  • A: The GC focused primarily on the challenge of high inflation in the euro area and in taking further steps for our normalisation path. It is not a question of catching up, but using all of the tools that we have to deliver on our mandate of price stability and in order to bring inflation down to target over the medium term.
  • Our analysis was that inflation is undesirably high and that we had to take today’s steps. It is not just a step, it is a journey. We started back in December and we gradually put ourselves in a position to move away from unconventional monetary policy.
  • A: We have to have the right monetary policy stance. We also have to make sure that monetary policy is transmitted throughout the entire euro area. To that end, we need to make sure that there is no fragmentation. We have the reinvestment capacity under PEPP as an instrument. This can be used with total flexibility if warranted.
  • If it is necessary, as we have amply demonstrated in the past, we will deploy new instruments or adjusted existing instruments.

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