FRANKFURT (Reuters) – At their meeting last month, European Central Bank policymakers debated a smaller increase in bond purchases and agreed to proceed with the purchase this quarter provided it can be reduced later if conditions allow, their meeting accounts on Thursday showed. .
Fearing that rising yields would derail a possible recovery, policymakers decided in March to “significantly” increase bond purchases and offset part of the rise in borrowing costs, which was seen as the reflecting a global reassessment rather than an improving economic outlook.
Monthly bond purchases under the ECB’s € 1.85 trillion emergency pandemic purchase program jumped more than a fifth last month, enough to stabilize bond yields nominal and lower inflation-adjusted yields to their early-year lows.
However, some policymakers have argued that a smaller increase in bond purchases would better reflect a more balanced risk assessment and expectations of faster growth.
“All members joined in a broad consensus around the proposal put forward by (Chief Economist Philip) Lane, on the understanding that the total PEPP envelope was not in question under current conditions and that the pace of purchases may be reduced in the future. Showed the minutes of the March 10-11 meeting.
“It was pointed out that the flexibility embodied in the PEPP was symmetrical, implying that the pace of buying could be increased and decreased depending on market conditions,” the ECB said.
The ECB will then review the pace of purchases in June. Several policymakers, including Dutch central bank chief Klaas Knot and Austria’s Robert Holzmann, have already expressed hope that the ECB could start cutting back on purchases in the third quarter as the pace of vaccinations picks up and that the health crisis is easing.
The accounts also showed a divergence of views on the assessment of rising yields. Policymakers agreed the increase was premature, but some argued that it was not significant, reflected a better outlook for inflation, and that borrowing costs were still very low.
Some have also argued that a rise in government bond yields must be large and persistent in order to affect borrowing costs.
“It was argued that higher real rates were not necessarily a cause for concern and should not trigger policy intervention if they reflected higher growth prospects rather than higher real-term premiums,” he said. declared the ECB.
The ECB will then meet on April 22, but this session is seen more as a closed meeting as the outlook remains stable and depends heavily on the pace of vaccinations.