ECB Is Said to See Bond Reinvestments as Key to Easing QE Blow

  • Reinvestments in 2018 said to average 15 billion euros a month
  • Governing Council wants to emphasize importance of the policy

The European Central Bank expects to reinvest an average of 15 billion euros ($18 billion) a month from maturing debt holdings next year, according to euro-area central-bank officials familiar with the matter -- spending that could soften the blow when its bond-buying program is wound down.

The ECB’s Monetary Policy Committee presented its estimate to the Governing Council last week, the officials said, asking not to be named as the deliberations are confidential. While reinvestments have long been a part of policy, governors are concerned that investors are underplaying the impact, three people said. An ECB spokesman declined to comment.

In the face of robust economic growth but still-subdued inflation in the euro area, the ECB is trying to find a way to “calibrate” quantitative easing in a way that averts any market shocks or unwarranted tightening of financial conditions. President Mario Draghi has stressed the complexity of the decisions but has said the bulk of them will be made in October.

By stressing the reinvestments, policy makers could mitigate any adverse market reaction to the announcement of a reduction in bond purchases. As an example, should policy makers agree to slow the pace of buying to 30 billion euros from the current 60 billion euros, total spending would actually average about 45 billion euros.

It’s not yet decided whether the ECB will disclose the specific value of reinvestments when it lays out next year’s plans, three people said. Details such as whether replacement purchases must match the nationality and duration of the maturing bonds also have yet to be agreed on, they said.

More Flexibility

Still, the reinvestments offer potential room for flexibility on the type of purchases, which could help the ECB overcome any shortages.

Over half a trillion euros of debt issued by the top four beneficiary nations in the QE program -- Germany, France, Italy and Spain -- is due for redemption next year, with roughly 125 billion euros owned by the ECB, according to Bloomberg calculations.

Holdings will total almost 2.3 trillion euros by the end of 2017, and economists have warned that some asset classes such as German debt will soon become scarce. The ECB has already been using the flexibility built into the program to buy more Italian and French debt, where availability is greater.

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