ECB Governing Council member Francois Villeroy de Galhau said yesterday, “ensuring favorable financing conditions are the conditions for the full transmission of this accommodative monetary stance”.

“Monetary policy is not only about quantities, it is also about the quality of its transmission. And it is not limited to one single indicator or one automatic rule like yield curve control, it incorporates judgment and discretion,” he added.

Villeroy also reiterated that ECB remains committed to the inflation target of below, but close to 2%. “Our goal is and remains inflation.”

Separately, Governing Council member Pablo Hernandez de Cos said, some downward risks from the fourth quarter could still continue in the first quarter.” Recovery in Eurozone is still uncertain and uneven.

ECB Chief Economist Philip Lane said in a speech there is “considerable uncertainty about pandemic dynamics. Recent intensification in some countries represents a “significant downside risk” and requires “prolongation of various fiscal support measures”.

But, “the launch of vaccination campaigns is a milestone in the eventual resolution of the pandemic health crisis, even if there is only cloudy visibility of the calendar towards sufficient immunity to enable the restoration of normal economic activity,” he added.

Under these conditions, standard Poole analysis calls for a “two-sided and flexible approach” to the total scale of PEPP. “If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.”

Full speech here.

ECB President Christine Lagarde said the central bank was creating a team of around 10 staff, reporting directly to her, to set the agenda on climate-related topics. “Climate change can create short-term volatility in output and inflation through extreme weather events, and if left unaddressed can have long-lasting effects on growth and inflation,” Lagarde noted.

Executive Board member Fabio Panetta also said, ECB has already taken steps on contributing to environmental policies in the implementation of monetary policy. For example, “sustainable finance instruments – the sustainability-linked bonds – among the collateral that can be used in refinancing operations” were included.

Additionally, “the ECB has to protect its balance sheet from the financial risks caused by climate change that are not correctly priced by the markets,” Panetta added. “By performing its own analysis of these risks on the basis of rigorous methodologies, the ECB can contribute to the accurate valuation of these climate-related risks and promote awareness among investors, thereby helping to combat climate change. These issues are currently being considered as part of our monetary policy strategy review.