The European Central Bank (ECB) Governing Council convenes in Limassol on Wednesday with European Central Bankers set to discuss the issue of shrinking the ECB’s balance sheet, called “quantitative tightening.”
The 19 central bankers and the ECB executive board members are visiting Cyprus following an invitation by Central Bank of Cyprus and ECB Governing Council member, Constantinos Herodotou. The ECB Council will continue deliberations on Thursday as well.
As the ECB has embarked on the journey of monetary policy normalisation and proceeded with two rate hikes so far in a bid to tame Eurozone soaring inflation, governing council members have brought the issue of the ECB balance sheet to the fore. Since the beginning of asset purchases in 2014 via the APP programme as well an emergency pandemic purchases programme (PEEP) the ECB has amassed trillions of euros on its balance sheet, in mainly sovereign bonds.
According to Bloomberg, Austria’s Robert Holzmann said shrinking the trillions of euros of bonds accumulated by the ECB during recent crises is part of the normalization process, and that so-called quantitative tightening will be discussed at a non-monetary-policy meeting in Cyprus.
Discussions on the shrinking of the ECB balance sheet will begin in the non-monetary policy meeting scheduled to be held in Limassol Wednesday, the Financial Times have said, noting however that “any announcement on the issue is unlikely until later in the year, with the first opportunity coming at the October 27 monetary policy meeting in Frankfurt.”
Citing two people involved in the talks, the FT said that ECB was likely to decide by the end of the year to reduce the amount of maturing bonds it replaces in a portfolio of mostly government securities that it only stopped adding to in July.
During a Governing Council meeting held in Nicosia on March 5, 2015, the then ECB President Mario Draghi announced the commencement of government bonds purchases in secondary markets.