When European Central Bank officials meet to assess their policy stance in two weeks, at least one of them may be pushing to divulge some details on how maturing debt bought under quantitative easing is being reinvested.
“We should communicate more on the reinvestment portfolio, and probably we will do that in the near future,” the institution’s chief economist Peter Praet said at a conference in New York on Wednesday.
“Everybody in the market is trying to guess how much, so at some time you need to give at least the figures,” he said. “I am very much in favor of this.” He didn’t elaborate any further.
Investors have been searching for clues as to how much they can rely on the ECB to mop up euro-area bond supply if and when its starts to gradually withdraw its extraordinary stimulus. Central banks in the region currently buy 60 billion euros ($71 billion) of debt a month, an amount which is widely expected to be reduced after the end of this year. The ECB’s pledge to replace maturing assets could help mitigate any potential negative market impact.
The ECB’s Governing Council is due to spell out the bulk of their plans for quantitative easing going forward after their Oct. 26 meeting. While the region’s economy has seen a significant strengthening in growth indicators, any changes to monetary policy are likely to be guided by the fact that inflation still isn’t yet near the ECB’s goal of just below 2 percent.
“The evidence still shows insufficient progress toward a sustained adjustment in the path of inflation,” Praet said. “Such ‘sustained adjustment’ is the principal contingency that has guided and will be guiding the introduction and withdrawal of our asset purchase program and, indirectly, of all the main components of our present policy.”
At the same time, he also hinted that stimulus in an environment of less uncertainty could be delivered in a slower fashion and over an extended period.
“In conditions in which uncertainty is high, front-loading the accumulation of a given stock of purchases more forcefully signals the central bank’s commitment,” he said. “By contrast, in more normal market conditions, the market’s capacity to engage in inter-temporal arbitrage improves. Consequently, investors may become ‘more patient’.”