FRANKFURT (Reuters) – The European Central Bank primarily focuses on bank credit conditions and bond yields when assessing if financing conditions are favourable, ECB Chief Economist Philip Lane said on Monday, fleshing out key conditions for setting stimulus.

ECB President Christine Lagarde renewed a commitment to maintaining “favourable” financing conditions last week but did not detail how these conditions would be measured and sources close to the discussion said policymakers could not agree on which gauges to focus on.

“Naturally, the focus on credit conditions in the banking system on the one side and the bond markets on the other is consistent with the main methods used by central banks in steering financing conditions,” Lane said.

Policymakers will revisit the issue at their March meeting in a potentially critical seminar that could determine how the ECB spends its 1 trillion euros of remaining firepower in its Pandemic Emergency Purchase Scheme (PEPP).

But some policymakers are critical of putting too much emphasis on government bond spreads as that could reduce the incentive for good fiscal policy and may be seen as exceeding the bank’s inflation-fighting mandate.

“The ECB routinely looks at a wide range of measures … with a prominent focus on the conditions facing customers who depend on bank-intermediated credit, as well as the conditions facing sectors which seek to obtain funding in bond markets,” he added.

Lane added that any premature steepening of the yield curve would work against the ECB’s efforts to counter the shock of the pandemic.

In a speech consistent with Lagarde’s policy statement, Lane repeated that the ECB will not necessarily spend all of its remaining bond purchase firepower while reserving the right to increase spending, if market conditions worsen.

“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” Lane said.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Catherine Evans)