The European Central Bank should consider changing plans to keep reinvesting maturing bonds from its €1.7 trillion ($1.8 trillion) pandemic portfolio until the end of 2024, Governing Council member Gediminas Simkus said.
(Bloomberg) — The European Central Bank should consider changing plans to keep reinvesting maturing bonds from its €1.7 trillion ($1.8 trillion) pandemic portfolio until the end of 2024, Governing Council member Gediminas Simkus said.
When the decision was made to keep replacing securities through next year, inflation was projected to be much lower, the Lithuanian official told Bloomberg TV.
“We need to discuss because the situation has changed — it’s very obvious,” Simkus said Friday in Marrakech. “There are all the preconditions to consider stopping it earlier.”
With interest rates likely at their peak, there’s an intensifying debate about whether the ECB should do more to reduce liquidity in the financial system — potentially by shrinking its balance sheet more quickly. While it’s already halted some reinvestments, the flexible nature of those under its pandemic portfolio, known as PEPP, also serves as a first line of defense against gyrations on financial markets.
Recent concerns over government finances have driven Italy’s borrowing costs higher. But that shouldn’t influence the ECB’s discussions about an earlier rolloff for PEPP, Simkus said.
“I don’t see a risk from the perspective of fragmentation,” he said. Talks about the PEPP are “basically a monetary-policy driven discussion.”
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