AMSTERDAM, June 9 (Reuters) – The European Central Bank (ECB) will adjust its current instruments or deploy a new instrument as needed to avoid a fragmentation of eurozone bond markets after the start of monetary policy tightening, a said Thursday its president, Christine Lagarde.
The evolution of the borrowing costs of euro area countries has been marked in recent weeks by a marked divergence between those of Germany, considered the safest issuer in the region, and those of heavily indebted countries, like Italy, the markets anticipating the end of government bond purchases by the ECB.
“If necessary, as we have amply demonstrated in the past, we will deploy either existing adjusted instruments or new instruments that will be made available,” said Christine Lagarde at a press conference after the meeting of the Governing Council of the ECB.
“But we are determined, determined, to ensure an adequate transmission of monetary policy and therefore to avoid fragmentation to the extent that it would weaken this transmission.”
The Governing Council announced on Thursday that it would end its asset purchase program (APP) on July 1 and start raising key interest rates on July 21.
The APP, launched in 2014 to prevent deflation in the euro area, has played a key role in recent years in keeping borrowing costs very low in the euro area, including in the most indebted countries; conversely, the prospect of its termination widened the yield gaps between States.
The ECB promised to fight “undesirable” fragmentation and to conduct a monetary policy including “flexibility”, but it did not specify at what level fragmentation would become “undesirable”, nor what measures it would take in this case. (Report Yoruk Bahceli, French version Marc Angrand)