Interplay of macro-financial and monetary objectives The recent focus on macro-prudential instruments has gone hand-in-hand with the debate about the role of monetary policy in leaning against asset price cycles and the accumulation of financial imbalances. We know that easy monetary policy, in the form of low interest rates, can interact with financial decisions by encouraging greater leverage.
Having the proper regulatory framework, the right tools and the mandate to use them is essential for achieving more balanced future developments, for example in credit and asset markets. The ESRB, therefore, reviews draft EU financial legislation, and provides suggestions to legislators on how to strengthen its macro-prudential dimension whilst ensuring that policy-makers have the flexibility to take necessary action.