The European Central Bank needs to deliver price stability, which entails financial stability, ECB President Christine Lagarde said on Tuesday, when asked what the Governing Council would do if markets reacted badly to French national elections.

Lagarde said the central bank would not comment of the political situation in any member state, let along one currently in an election period, but acknowledged that authorities were watching developments in France. (See MNI SOURCES: September Rate Cut In Sight For ECB)

She made no suggestion that policymakers were unsettled by moves in the French government bond yields, despite a doubling in the spread over German bunds in recent weeks, although she said that fiscal rectitude was essential.