ECB’s Schnabel: Quantitative normalisation is proceeding smoothly
European Central Bank’s (ECB) executive board member Isabel Schnabel said in the ECB Conference on Money Markets 2025 in Frankfurt on Thursday that the neutral monetary policy stance allows the central bank to tilt the new structural securities portfolio towards shorter-term securities.
Additional comments
Quantitative normalisation is proceeding smoothly, with strong liquidity positions of banks and abundant excess liquidity.
A persistent take-up of standard refinancing operations to precede the launch of structural operations.
There is no direct connection between the run-down of our legacy monetary policy bond portfolios and interest rate control.
Considerations about stance neutrality, policy space and financial soundness suggest tilting the new structural securities portfolio towards shorter-term securities.
Market reaction
EUR/USD has attracted slight bids after ECB Schnabel’s comments. The major currency pair rises to near 1.1515 during the press time.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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