European Central Bank (ECB) Governing Council member Isabel Schnabel said on Tuesday that the monetary policy can and should respond to a disorderly repricing of risk premia, as reported by Reuters.

Additional takeaways

"We will react to new emergencies with existing and potentially new tools."

"Tools might again look different, with different conditions, duration and safeguards to remain firmly within our mandate."

"There can be no doubt that, if and when needed, we can and will design and deploy new instruments to secure monetary policy transmission."

"Flexibility will remain an element of monetary policy whenever threats to monetary policy transmission jeopardise the attainment of price stability."

"Monetary policy will need to respond to destabilising market dynamics."

"We will not tolerate changes in financing conditions that go beyond fundamental factors and that threaten monetary policy transmission."

"We are therefore monitoring current market developments closely."

Market reaction

The EUR/USD pair showed no immediate reaction to these comments and was last seen posting modest recovery gains at 1.0430.