The review will assess the impact of the flagship bond buying program the ECB launched in response to the coronavirus crisis in March and raised to € 1.35 billion in June, two members of its board said. Directors to the Financial Times on condition of anonymity.
They said important questions for the review would be how long the pandemic emergency procurement program should continue and whether some of its additional flexibility should be transferred to the emergency pandemic procurement programs. older assets of the ECB.
“Having that extra flexibility has been very helpful,” said a board member. “We have to look very carefully at all the elements of the toolbox. We will have a good discussion, a good debate, and I don’t know where we will end.
The ECB declined to comment on the review, which is expected to be discussed by the board next month. This comes as debate intensifies over the council over whether it should start making plans to reduce the PEPP or consider expanding it further.
Until the introduction of the new program, the ECB’s purchases of sovereign bonds were bound by self-imposed rules, designed to prevent it from being accused of using monetary policy to directly finance governments, which which is illegal under EU law.
This changed with the PEPP, which dropped the restriction of buying only up to one-third of a country’s debt and introduced a more flexible interpretation of the rule requiring it to buy sovereign bonds in proportion to the debt. size of each country’s economy.
She also started buying Greek government bonds, breaking with the ECB’s tradition of not buying debt rated below the investment grade.
Any move to increase the flexibility of the ECB’s overall bond buying program is likely to spark controversy, especially among critics in Germany who are preparing to launch another legal challenge in the country’s Constitutional Court.
When the court ruled in May that the ECB must do more to explain why its purchases of government bonds did not violate EU law, it stressed that the rules it imposed on itself were one of the main reasons the purchases always seemed legal.
A second board member said the review would examine whether the ECB should abandon the use of the PEPP and instead focus on scaling up its other asset purchase programs, while potentially giving them the same added flexibility.
“It might be easier for some national central banks to accept that we expand the traditional asset purchase program rather than the PEPP,” the second board member said.
Some members of the ECB board are concerned that the PEPP will become a more enduring part of the central bank’s policy framework, particularly after its extension from the end of this year until June 2021.
Jens Weidmann, chairman of the German Bundesbank and one of the ECB’s longest-serving board members, said this month that “emergency monetary policy measures must be scaled down once the crisis is over” . He added: “When deciding on the PEPP, it was especially important to me that it had a time limit and was explicitly linked to the crisis.”
Last week, the ECB bought € 527 billion in assets under the PEPP in addition to the more than € 2.8 billion in assets it holds under its other purchase programs of assets. Some economists expect it to increase its bond buying plans by an additional 500 billion euros as early as December in an attempt to bring inflation back to its target of just under 2%.