European Central Bank (ECB) Executive Board member Isabel Schnabel emphasized the importance of a data-driven approach to policy decisions in light of recent disturbances in the banking sector. She stated yesterday, “I can’t tell you what we’ll decide at the next meeting, and especially at the following meetings,” adding that the situation has become “even more complex.”

Schnabel noted the significance of monitoring the potential impact of banking sector uncertainty on lending, saying, “It’s even more important that we look at all the data we’ll get. It’s important whether the uncertainty in the banking sector will have an additional impact on lending.”

When discussing the ECB’s future plans for its balance sheet, Schnabel admitted that the endpoint remains uncertain and is currently under discussion. She emphasized the need to manage the balance sheet in a way that markets can digest during these turbulent times and expressed satisfaction with the current approach, stating, “So far, it’s worked extraordinarily well.”

ECB President Mario Draghi said he’s “certainly worried about central bank independence in other countries, especially… in the most important jurisdiction in the world’. He emphasized, “central banks ought to be left free to choose what’s the best way to comply with the mandate.”

He added: “Because if you don’t let them be free, then they’re not accountable. That’s the central banking framework since the 80s everywhere.”

On Eurozone economy, he warned that risk of hard Brexit and global trade war continued to “loom large”. But he’s still optimistic that factors weighing down Eurozone growth are waning. And there will be recovery in the second half.

ECB Chief Economist Philip Lane said in a speech that risks to the inflation outlook are “primarily on the upside”. Major short term risk is a “further disruption of energy supplies”. Over the medium term, inflation may turn out to be higher than expected because of a “persistent worsening of the production capacity”, further increases in “energy and food prices”, and rise in “inflation expectations above our target” or higher “anticipated wage rises.

“In the context of a long projected period with inflation far above target, the net upside risks to inflation and taking into account that the current setting of the key policy rates is still highly accommodative, it was appropriate to take a major step that frontloads the transition from the prevailing highly-accommodative level of policy rates towards levels that will support a timely return of inflation to our target,” he said, about last week’s 75bps rate hike”.

“In calibrating a multi-step transition path, the appropriate size of an individual increment will be larger, the wider the gap to the terminal rate and the more skewed the risks to the inflation target, he added.

Full speech here.

ECB’s chief economist Philip Lane said today, “the medium-term inflation dynamic is too slow, not too fast.””We still think we’re some distance in terms of medium term from 2%,” he added. “The trigger for monetary policy action is not there.”

“In addition to rate forward guidance, calibrating the volume of asset purchases also plays an important role in ensuring that the monetary stance is sufficiently accommodative,” said.

“The compression of term premia through the duration extraction channel plays a quantitatively-significant role in determining longer-term yields and ensuring that financing conditions are sufficiently supportive to be consistent with the delivery of our medium-term inflation objective.”