A new tool aimed at capping a spreads blow out could come with conditions, the ECB's Isabel Schnabel says.
New tools aimed at preventing market fragmentation could include elements of conditionality, European Central Bank Executive Board member Isabel Schnabel said in a speech Tuesday, reiterating that the ECB will not tolerate disorderly price adjustments that undermine the transmission of its monetary policy.
“These tools might again look different, with different conditions, duration and safeguards to remain firmly within our mandate,” Schnabel said. “But there can be no doubt that, if and when needed, we can and will design and deploy new instruments to secure monetary policy transmission and hence our primary mandate of price stability.
Some member states have seen significantly larger changes in financing conditions than others since the start of the year, Schnabel said.
“What is important in this environment is that investors have a clear understanding that monetary policy can and should respond to a disorderly repricing of risk premia that impairs the transmission of monetary policy and poses a threat to price stability.”