Praet Says QE Reduction Doesn’t Signal Start of Stimulus ExitBy and
Executive Board member has no doubt buying to go as planned
Coeure expects “some relief” from reduction in buying
European Central Bank Executive Board member Peter Praet said the reduction in the monthly volume of asset purchases is not the beginning of the end for its quantitative easing program.
As of this week, the ECB is scaling down monthly purchases of public and private debt to 60 billion euros ($64 billion) from the previous pace of 80 billion euros. The institution intends to run the program until at least the end of the year and has repeatedly said it could be increased again if needed.
“This adjustment does not signal the start of a gradual reduction of purchases -- tapering,” Praet said in an interview with Spanish newspaper Expansion released on Monday. “Overall, we considered that our presence in the market would ensure a more lasting transmission of our stimulus measures.”
The asset-purchase program has been dogged by concerns that the ECB will run out of suitable bonds to buy once it reaches limits set for individual countries. The adjustments made in December, which include allowing buying of paper with maturities shorter than two years and below its deposit rate, mean policy makers “have no doubt” they will be able to keep buying as promised.
Speaking separately in Paris, Executive Board member Benoit Coeure said the reduction in the monthly volume of purchases “will provide some relief” for the ECB. The buying of bonds yielding less than ECB’s deposit rate, currently at minus 0.4 percent, probably had limited impact on the recent widening of spreads between two-year bonds and the OIS curve, he said.
“The combination of growing excess liquidity and the need of investors without access to our deposit facility to park these holdings in a safe and liquid storage vehicle are likely to have been a measurable driver of recent developments,” Coeure said. “Temporary blips can be safely ignored. But a silent and lasting decoupling of the short end of sovereign curves from our key policy rates warrants close monitoring by policymakers.”
— With assistance by Alessandro Speciale, and Carolynn Look