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ECB committed to act on fragmentation risks, Centeno says

Economy Jun 20, 2022 06:05AM ET
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© Reuters. FILE PHOTO: European Central Bank governing council member Mario Centeno speaks during an interview with Reuters in Lisbon, Portugal, March 15, 2021. REUTERS/Pedro Nunes

By Sergio Goncalves

LISBON (Reuters) -The European Central Bank is very determined and committed to act against the risk of fragmentation and is designing instruments as a deterrent to pressure on debt spreads, governing council member Mario Centeno said on Monday.

Speaking at an event hosted by CNN Portugal, Centeno said such tools would only be used in case of need, "or, if well designed, could hopefully never be used at all".

The ECB said on Wednesday that it had mandated its staff to accelerate the design of an "anti-fragmentation" tool after a sharp widening of southern European bond yield spreads versus the safe-haven German debt.

The 10-year spread of Italian bonds versus German Bunds, the most scrutinised by investors, which hit a high of around 250 basis points last week, is around 203 basis points on Monday. Portugal's debt for the same maturity negotiates with a spread of 107 basis points.

Centeno said "there is a great determination and commitment" to deal with the risk of fragmentation "that cannot be taken off the table".

"There will be a new insurance that will only be used if necessary" to bring "discipline to the market that seems not to exist whenever spreads go beyond the fundamentals" of economies.

He reiterated that the normalisation of monetary policy will proceed gradually via the instruments the ECB has and those it will launch to create conditions for the 2% inflation goal to be achieved.

"We are going to take key rates from a negative level where they are still currently to levels close to what is conventionally called the natural rate, although we don't have a number," Centeno said.

He added that "the biggest risks are a slower recovery of supply conditions and the continuation of the conflict in European territory which impacts economic activity and prices".

ECB committed to act on fragmentation risks, Centeno says
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Comments (4)
Dave Jones
Dave Jones Jun 20, 2022 6:37AM ET
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fragmentation of economies
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Lawrenti Berija
Lawrenti Berija Jun 20, 2022 6:32AM ET
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brrrrr, i can already hear it....
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Dave Jones
Dave Jones Jun 20, 2022 6:32AM ET
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money printer go....
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Joel Schwartz
Joel Schwartz Jun 20, 2022 6:13AM ET
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Central banks caused this mess in the first place.
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Francis Lim Wei
Francis Lim Wei Jun 20, 2022 5:51AM ET
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dun trust them when they say that because they know the Italian bond is failing, words are cheap
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Oluwashina Adebayo
Oluwashina Adebayo Jun 20, 2022 5:51AM ET
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hmmm
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