The European Central Bank said it will be flexible in reinvesting proceeds from the pandemic emergency bonds that are due to mature, and that it will create a new tool to address the fragmentation risk in the euro area after bond yields soared in the past few days, raising concerns of a debt crisis.
The Governing Council held an unscheduled meeting on Wednesday to discuss the current market conditions.
"The pandemic has left lasting vulnerabilities in the euro area economy which are indeed contributing to the uneven transmission of the normalisation of our monetary policy across jurisdictions," the ECB said in a statement.
"Based on this assessment, the Governing Council decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism, a precondition for the ECB to be able to deliver on its price stability mandate."
Further, the ECB said the Governing Council decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by policymakers.
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