ECB’s Schnabel: Monetary Policy Implementation and Stance Two Separate Things

1 April 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Executive Board member Isabel Schnabel on Monday called it crucial that, in the context of the operational framework, the ECB’s monetary policy stance and its implementation be seen separately.

In an interview with the Macro Musings podcast, produced by the Mercatus Center of the Geroge Mason University, Schnabel said, ‘The goal of the operational framework is to steer short-term money market rates in line with the Governing Council decisions. So, it’s very important that this is about monetary policy implementation, so it has to be seen separately from the monetary policy stance, that’s a crucial point.’

Asked about the changes in the ECB’s operational framework, she said that narrowing the spreads between the DFR and the MRO from 50bp to 15bp was ‘quite relevant’ but was not a monetary policy stance decision.

‘So we wanted to make it very clear that this is not monetary policy stance decision, and so even though this change leads to a cut in interest rates, this is not to be seen as a monetary policy decision. It’s really an operational decision, and this is why we thought it’s wise to separate it a bit from the actual announcement’, she said.

There was uncertainty about money market rates, particularly due to the many changes to the financial system, she said.

‘And therefore, we need to be prepared and we have to make sure, so we have the monetary policy decision that the monetary policy portfolios are going to be pruned down, but we have to make sure that on that way we do not get an accident and that this goes smoothly’, she said. ‘I think it’s much better to be early and to be prepared to send the proper signals also to the banks that they can prepare for what is going to come.’