ECB bond sale will be in March
2022.12.15 09:18
ECB bond sale will be in March
Budrigannews.com – The European Central Bank announced on Thursday that it would begin reducing its 5 trillion euro (5.3 trillion US dollars) bond portfolio in March as the next step toward tighter policy in its fight against inflation that has been rising for decades.
The ECB said it would diminish its Resource Buy Program (Application) bond property at a typical speed of 15 billion euros each month beginning in Spring for the rest of the subsequent quarter, with the resulting speed not set in stone over the long run.
It will accomplish this by not reinvesting some of its holdings of maturing bonds. The ECB stated that at its meeting in February, it would provide more specific parameters for the reduction.
The reduction should tighten financial conditions and raise borrowing costs for businesses and governments by raising longer-term borrowing costs.
It will stand in for conventional rate hikes, which typically raise costs for short-term funding. On Thursday, the European Central Bank (ECB) increased its policy rates by another 50 basis points, bringing the total since July to 250 basis points, an unprecedented rate.
The ECB stated in a statement, “The asset purchase programme (APP) portfolio will decline at a measured and predictable pace.”
“To ensure that it remains consistent with the overall monetary policy strategy and stance, to preserve market functioning, and to maintain firm control over short-term money market conditions,” the Governing Council will periodically reevaluate the pace of the APP portfolio reduction.
More ECB slows pace rate hikes
The majority of the ECB’s debt holdings are the 3.3 trillion euros of APP purchases. The plan, which was started in 2015 to fight deflationary risks, has made the bank the largest creditor of many governments in the euro zone.
Due to the fact that the plan does not include the 1.7 trillion euros of debt that the ECB has purchased through its more adaptable Pandemic Emergency Purchase Programme (PEPP) since the height of the COVID-19 pandemic in 2020, the ECB will continue to support debt markets. Prior to the end of 2024, the ECB had decided to continue replacing PEPP debt that was approaching maturity.
The U.S. Federal Reserve took a similar action earlier this year, which is known as quantitative tightening, to remove debt from the balance sheet.
Despite the fact that the ECB has already reduced its balance sheet by returning 800 billion euros of extremely low-cost financing from banks, its total assets of 8 trillion euros remain exceptionally large by historical standards.
At the ECB President Christine Lagarde’s press conference at 13:45 GMT, investors will be keeping an eye out for any additional information.
