Ending these is more complicated because the ECB has the
power to skew these purchases towards certain countries in case
of market stress, so the portfolio is more actively used.
(Writing by Balazs Koranyi; editing by Mark John and Hugh
Lawson)
By Balazs Koranyi
WASHINGTON, April 14 (Reuters) - A growing number of
European Central Bank policymakers are calling for the bank to
stop reinvesting cash into its largest bond buying scheme, to
help trim its balance sheet as part of efforts to tackle
inflation, sources with direct knowledge said.
The ECB is still sitting on 3.2 trillion euros of mostly
government bonds held in its Asset Purchases Programme, bought
during the low-inflation era in the hope of lowering borrowing
costs and thereby boosting economic growth. It is already
letting 15 billion euros worth of these bonds expire each month.
Earlier, Belgian central bank chief Pierre Wunsch told
Reuters on the margins of the International Monetary Fund spring
meeting in Washington that he favoured a full halt to
reinvestments this year.
Five other sources told Reuters that, notwithstanding recent
turmoil in the bank sector, all reinvestments should end in the
second half of the year because the balance-sheet reduction is
moving too slowly given the priority of reining in inflation.
None of the sources, who all asked not to be named,
advocated outright sales of government or private debt, which
could still happen later but was not part of any discussion now.
An ECB spokesperson declined to comment.
The sources said the ECB should not implement a hard stop,
however, and could stay flexible to react to episodes like last
month's banking sector volatility. But when markets are calm,
like now, the ECB should let all maturing debt expire, they
said.
The euro zone has fared well in the volatility, they argued,
and the ECB still has its Transmission Protection Instrument, an
untested bond-purchase scheme, at its disposal to deal with
volatility.
A halt to reinvestment could push borrowing costs up but
with nominal yields well into positive territory now, demand for
bonds is also up, and the sources said they saw no shortage of
investor appetite.
Martins Kazaks, Latvia's central bank chief, took a more
measured view, arguing that reinvestments should stop when
market conditions allow but not necessarily on a set calendar.
"We should accelerate quantitative tightening when we are
confident that financial markets will be able to handle it,"
Kazaks said. "I think shrinking the balance sheet is an
important thing and if the financial conditions allow for that,
we should do so."
The ECB has committed to the 15 billion figure until the end
of the second quarter and said this decision will be up for
review, likely at its June meeting.
Redemptions fluctuate but about 148 billion euros' worth of
debt expires in the second half of the year, so a full
reinvestment stop would see an extra 58 billion euros' worth of
maturities on top of the currently scheduled 15 billion euros
per month.
The sources said that once these reinvestments end, the next
discussion would be about reinvestments in the 1.68 trillion
euro Pandemic Emergency Purchase Programme, which are set to
continue until the end of 2024.
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