As financial and business cycles are not always aligned across countries and sectors in the euro area, area wide monetary policy needs to be complemented by more targeted macroprudential policy. Unlike monetary policy that influences the euro area across the board macroprudential policy instruments can be applied in a granular manner, addressing risks at the country, sector and institutional level.
Macroprudential policy therefore provides the most appropriate instruments for mitigating financial stability risks, thereby supporting the price-stability focused monetary policy. An effective macroprudential policy requires policy interventions in a timely and bold manner, significantly affecting the normal behaviour of financial markets or financial institutions. This poses challenges.