Central Banks
Why QT Is Forcing the ECB to Rethink Its Monetary-Policy Levers
- Balance-sheet size can determine which ECB rate steers markets
- Choice is between current floor system or previous corridor
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Market ructions are the immediate worry as the European Central Bank prepares to retreat from €5 trillion ($5.4 trillion) of bond holdings, but the exit is raising more fundamental questions about how it will set interest rates over the coming years.
So-called quantitative tightening, alongside nudging banks into handing back cheap loans, form part of an epic fight with inflation that’s brought the fastest hikes in borrowing costs in ECB history.