Concerned about the risk that the rise in bond yields on the markets would jeopardize the economic recovery, the members of the Governing Council of the ECB decided in March to increase the purchases of securities made as part of the emergency pandemic (PEPP), endowed with 1.850 billion euros.
These purchases rose by more than 20% last month, helping to stabilize nominal bond yields and bring inflation-adjusted yields back to their lows at the start of the year.
But some Board members argued for a more limited increase, which they said would more accurately reflect the balance of risks and expectations of accelerating growth.
“All members joined in a broad consensus around the proposal put forward by (Chief Economist Philip) Lane that the full PEPP envelope was not in question under current conditions and that the pace of purchases may be reduced in the future, “says the report.
“It was stressed that the flexibility provided by the PEPP was symmetrical, which implies that the pace of purchases can be increased and decreased depending on market conditions.”
DIVERSE INTERPRETATIONS OF INCREASING YIELDS
The ECB will reassess the pace of its purchases in June and several board members, including Dutch central bank governor Klaas Knot and his Austrian counterpart Robert Holzmann have already expressed hope that progress in vaccination against COVID-19 and the improvement in the health situation allow them to start reducing them in the third trimester.
The minutes of the discussions on March 10 and 11 also show that the Board was divided on the interpretation of the rise in bond yields.
While some of its members considered this move premature, others felt that it reflected an improving outlook for inflation, noting that financing costs remained very low.
Some also said that the increase in government bond yields should be strong and sustainable to have an impact on financing costs.
“It has been argued that a rise in real rates is not necessarily a cause for concern and should not trigger a monetary policy reaction if it reflects an improvement in growth prospects rather than an increase in term premiums real, “says the record.
The next Governing Council meeting will take place on April 22, but the markets are not expecting any major change in the ECB’s strategy.
On Thursday, in a statement released on the occasion of the spring meeting of the International Monetary Fund, Christine Lagarde said the pandemic would continue to weigh on economic activity in the short term but longer-term risks were emerging. to flow back.
(Balazs Koranyi and Francesco Canepa, French version Marc Angrand, edited by Patrick Vignal)
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