ECB lays out plans for balance sheet run-off

The European Central Bank will continue partial reinvestments of maturing debt in line with current practice once it starts running down its 5 trillion euro bond portfolio from March, it said on Thursday.

“The remaining reinvestment amounts will be allocated proportionally to the share of redemptions across each constituent programme of the APP (Asset Purchase Programme) and, under the public sector purchase programme (PSPP), to the share of redemptions of each jurisdiction and across national and supranational issuers,” the ECB said in a statement.

The euro zone’s central bank will also would skew remaining corporate debt reinvestments “more strongly” towards companies with a better climate performance, it said.

The statement came as the ECB also announced another 50 basis point rise in interest rates.

The ECB said in December that it would run bonds off its balance sheet at an average pace of 15 billion euros per month from March through June by not fully reinvesting proceeds from maturing debt – a process known as quantitative tightening, or QT. The bonds were bought under the APP from 2015 as the ECB tried to contain deflation risks in the euro zone.

By raising longer-term borrowing costs, the wind-down should tighten financial conditions, making it more expensive for firms and governments to borrow.
Source: Reuters