Two influential members of the European Central Bank’s policymaking team argued on Saturday for a reduction in the bank’s bloated balance sheet, signalling that the topic of the next significant policy discussion would be how to devalue the ECB’s more than 5 trillion euro worth of bonds.
Joachim Nagel, the president of the Bundesbank, and Klaas Knot, the head of the Dutch central bank, both stated that the time for this ‘quantitative tightening’ is rapidly approaching, joining the still-small but-growing group that supports a run-off in assets.
In a lecture in Washington, Knot said, ‘It makes sense to consider the roll-off of asset purchases by reducing reinvestments once we would have entered neutral zone with our policy rate. I do think that this is a place where we should go slowly.’
The balance sheet run off, which is a part of a larger plan to tighten monetary policy, is necessary because inflation is currently running at 10% and will continue to exceed the ECB’s target of 2% for years to come.
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