The European Central Bank will stop reinvesting money from maturing bonds purchased under its €3.2 trillion asset purchase program from July, the bank said Thursday, taking another small step to shrink its oversized balance sheet .
The ECB has allowed €15bn worth of bonds, mainly government debt, to mature since March, but officials have called for a complete halt to reinvestments as markets readily accepted the ECB’s reduced role as buyer.
“The Governing Council will continue to reduce the portfolio of the Eurosystem’s asset purchase program at a determined and predictable pace,” he said. “In line with these principles, the Governing Council plans to stop APP reinvestments from July 2023.”
Repayments fluctuate, but around €148 billion of debt held in the APP matures in the second half of the year. This means that the reinvestment halt will account for an additional €58 billion of maturities, on top of the €15 billion currently envisaged.
The ECB bought the bonds when inflation was very low, hoping that pushing borrowing costs for businesses and households close to zero would stimulate growth and drive up prices.
But now it has the opposite problem: inflation is very high and the bank is raising interest rates at a record pace to slow demand and drive price growth to its 2% target.
At €7.7 trillion, the ECB’s balance sheet is already more than a trillion euros below its maximum size, but remains well above its historical average.
Thursday’s decision does not affect reinvestments in the €1.7 trillion pandemic emergency purchase programme, which is expected to continue until the end of 2024.
Source: Terra
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