ECB pushes back talks about bonds, reserves into 2024: sources

European Central Bank policymakers agreed on Thursday to delay until early 2024 any talk about ending bond buys and to debate bank reserve requirements only as part of a framework review due in the spring, two sources told Reuters.

Some commentators had expected the ECB to start debating on Thursday whether to stop reinvesting cash from maturing bonds in the 1.7 trillion euro Pandemic Emergency Purchase Programme (PEPP) early but the bank’s President Christine Lagarde said there was no such discussion.

Reinvestments are set to run until the end of 2024 but some policymakers including Belgium’s Pierre Wunsch, Austria’s Robert Holzmann and Latvia’s Martins Kazaks have made the case for a debate about an early end to reinvestments since the bank is already tightening policy.

Skipping any substantial discussion of the issue, policymaker agreed on Thursday that the PEPP debate should take place sometime this winter.

The more complex issue of what proportion of their deposits commercial banks should park at their central bank and the remuneration of these mandatory reserves should happen only later, the sources said.

An ECB spokesperson declined to comment.

The sources added their expectation was that reinvestments would not end abruptly and the ECB would follow the sort of gradual approach it did with the larger Asset Purchase Programme.

Banks must park a certain portion of their liabilities at their national central bank without earning interest on them. Some policymakers want to increase the portion of such deposits, partly because central banks are booking large losses from paying interest on excess liquidity.

The ECB is conducting an operational framework review on steering short term interest rates and minimum reserve rules need to be part of that debate, policymakers agreed on Thursday.
Source: Reuters (Reporting by Balazs Koranyi, Frank Siebelt and Francesco Canepa)