Schnabel Says ECB May Need to Add Support if Yields Hurt Growth

The European Central Bank may need to boost its monetary support for the economy if rising government borrowing costs hurt growth, Executive Board member Isabel Schnabel said.

“A rise in real long-term rates at the early stages of the recovery, even if reflecting improved growth prospects, may withdraw vital policy support too early and too abruptly given the still fragile state of the economy,” she said in a virtual conference on Friday. “Policy will then have to step up its level of support.”

Schnabel’s remarks add to a sense of concern from the ECB that the bond market threatens to stifle the euro region’s recovery even before it’s begun.

Investors are betting that a global rebound, fueled by massive U.S. fiscal stimulus, will boost inflation. The worry for the euro zone is that borrowing costs will rise by more than the economy can handle as it endures a slow vaccine rollout and extended virus restrictions.

On Thursday, Chief Economist Philip Lane said the ECB will use the flexibility of its emergency bond-buying program to prevent any undue tightening in financial conditions. President Christine Lagarde also cautioned this week that the ECB is “closely monitoring” bond yields.

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