— Panetta, de Guindos suggest the PEPP envelope could be increased
By Laurie Laird
LONDON (MaceNews) – Leading European Central Bank officials expressed concern over the recent increase in sovereign bond yields, suggesting that the ECB is open to increasing its quantitative easing programme or even cutting interest rates to keep borrowing costs in check.
“The steepening in the nominal GDP-weighted yield curve we have been seeing is unwelcome and must be resisted,” said ECB executive board member Fabio Panetta at on online event organised by Bocconi University on Tuesday.
His comments echoed those of ECB Vice President Luis de Guindos, who told the Portuguese newspaper Publico that the ECB “will be monitoring nominal sovereign bond yields “over the coming weeks and months,” in an interview published on Tuesday.
Neither official ruled out an increase in the ECB’s Pandemic Asset Purchase Programme, which rose by €500 billion to €1.85 trillion in December. de Guindos stressed the ECB is “totally open”to “recalibrating” policy if needed, “including the envelope of the PEPP.”
Panetta took a similar stance, urging the governing council “to increase the volume of purchases and to spend the entire PEPP envelope of more if needed.”
The language marks a departure from official comments following the January governing council meeting, after which ECB President Christine Lagarde noted that the full PEPP envelope may not be exhausted. The rate-setting body meets next week, with a rate announcement and press conference scheduled for 11 March.
Board member Panetta refused to rule out a rate cut, noting he “expects policy rates to stay at present or lower levels until inflation has robustly converged to” the ECB’s target of close to but below an annual rate of 2%.
Eurozone inflation, as measured by the harmonised index of consumer prices, steadied at an annual rate of 0.9%, falling short of expectations, but well above the negative rates recorded over the winter.
However, Panetta spoke of the ECB’s willingness to “look through” any “transitory hump”in price rises. “The risk of inflation undershooting [target] is still very high, while the risk of overshooting is negligible.”