ECB’s Knot: Financial Stability Demands Caution Even with Disinflation

26 February 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Klaas Knot on Monday said that despite a global deceleration of inflation, the financial stability outlook was still challenging and demanded caution. 

In a letter to the G20 Finance Ministers and Central Bank Governors, written in his capacity of Chair of the Financial Stability Board, Knot, who also heads De Nederlandsche Bank, said, ‘As inflation has been moderating towards target in many countries, global financial conditions are showing signs of easing. But caution is warranted.’

Geopolitical uncertainty, monetary policy’s transmission lag and the exposure to existing headwinds were some of the challenges to financial stability, he said.

‘Abrupt shifts in market pricing could expose vulnerabilities in the financial system, including those related to leverage and liquidity mismatch in non-bank financial intermediation’, he added.

‘Last year’s banking turmoil was a further reminder that we cannot be complacent in the current environment’, he said.

The evolution of the financial system called for the promotion of financial stability, he said.

‘This year, the FSB’s work will contribute further to that goal and to harnessing the benefits that a more sustainable and digitalised financial system can offer to our societies’, he said.