Economy6 months ago (Apr 08, 2021 05: 10PM ET)
© Reuters. FILE PHOTO: ECB headquarters at Frankfurt
FRANKFURT (Reuters) – European Central Bank policymakers at their meeting last month triggered a smaller growth in bond purchases and consented to front-load the buying this quarter on state it might be cut after if conditions allow, the balances of the meeting showed on Thursday.
Worried that rising yields would derail an eventual recovery, policymakers at March chose to”significantly” raise bond buys and reverse some of the rise in borrowing costs, which was deemed a reflection of a global repricing rather than improved financial prospects.
Monthly bond buys beneath the ECB’s 1. ) 85 trillion-euro Pandemic Emergency Purchase Programme jumped by over a fifth last month, sufficient to stabilize nominal bond returns and push inflation-adjusted yields back to their early-year lows.
However, some policymakers argued that a smaller growth in bond buys would better reflect a more balanced risk assessment and expectations for faster growth.
“All members joined a broad consensus around the proposal put forward by (chief economist Philip) Lane, on the understanding that the total PEPP envelope was not being called into question in the current conditions and that the pace of purchases could be reduced in the future,” the account of the March 10-11 meeting revealed.
“It was underlined that the flexibility embodied in the PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions,” the ECB said.
The ECB will review the rate of purchases in June. Several policymakers, including Dutch central bank chief Klaas Knot and Austria’s Robert Holzmann, have expressed hope the ECB could start reducing the buys in the next quarter since the pace of vaccinations picks up and the health crisis abates.
The accounts also showed a rift in views on the assessment of the rise in yields. Policymakers agreed the increase was early, but some argued it was not important, reflected greater inflation prospects, and borrowing prices were very low.
Some also argued that a rise in government bond yields required to be significant and persistent to affect borrowing costs.
“It was argued that higher real rates were not necessarily a cause for concern and should not trigger a policy intervention if they reflected higher growth prospects rather than higher real term premia,” the ECB said.
The ECB next meets on April 22, but that semester is viewed as more of a placeholder assembly, as the outlook remains steady and highly depends upon the speed of vaccinations.
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