Interaction between monetary policy and financial stability The second challenge that monetary policy is facing today relates to potential side effects, in particular related to financial stability. The pandemic highlighted that the interaction between monetary policy and financial stability is a two-way street. In the early phase of the crisis, forceful monetary policy action preserved financial stability.
Our measures had a strong and immediately stabilising effect on both financial markets and the health and soundness of banks’ balance sheets. But the lower interest rates are, and the flatter the yield curve is, the greater the risk that the sign may switch over time.