Isabel Schnabel, ECB Executive Board member, outlined the Eurosystem’s ongoing quantitative normalisation and future balance sheet strategy at the 2025 ECB Conference on Money Markets. She emphasized that the gradual reduction of monetary policy bond portfolios since March 2023 has been smooth, with banks maintaining strong liquidity and excess reserves. Schnabel clarified that the process represents quantitative normalisation rather than tightening, aiming to remove residual monetary stimulus while preserving market functioning and financial stability.
The ECB’s operational framework, she explained, ensures elastic supply of reserves via standard refinancing operations, decoupling balance sheet run-off from interest rate control. Structural operations, including longer-term refinancing operations and a new structural securities portfolio, will follow a persistent rise in the take-up of standard operations. Schnabel highlighted that future asset purchases will prioritize policy stance neutrality, maintaining policy space, and safeguarding financial soundness, with a tilt toward shorter-dated securities.
The speech underscores the ECB’s focus on a demand-driven, flexible balance sheet, aligning liquidity provision with banks’ needs while preparing for structural operations to support the euro area banking system’s long-term liquidity requirements.
