FRANKFURT (Reuters) -The European Central Bank is still far away from resuming debt purchases to inject liquidity into the banking system as it first needs to work off more of the bonds it bought over a decade of easy policy, ECB board member Isabel Schnabel said on Thursday.
The ECB has been slowly mopping up some of the trillions of euros it pumped into the financial system under a number of bond-buying schemes in 2015-22, when it was trying to revive inflation that was then too low.
Schnabel, who is in charge of the ECB’s markets operations, said this ongoing “quantitative normalisation” process will continue until she and her colleagues on the Governing Council deem enough bonds have run off the central bank’s balance sheet.
“Purchases under the new portfolio will only start once the liquidity injected through our legacy monetary policy bond portfolios and the net financial asset position falls short of covering the share of reserves the Governing Council decided to provide through securities holdings,” Schnabel said.
“Passive balance sheet run-off implies that this point is still far away.”
She reaffirmed the new purchases should be focussed on short-term bonds, not least to protect the ECB from further losses if interest rates rise.
Before any bond is bought, Schnabel said the ECB will resume lending long-term liquidity to banks.
This could take the shape of regular auctions of a fixed amount of cash at a variable rate, Schnabel said, with a maturity to be decided.
“In the past, the ECB has varied the maturity of the loans it provided to banks,” Schnabel said. “Only in exceptional circumstances, such as in response to the sovereign debt crisis or the pandemic, did the term of these operations exceed one year.”
(Reporting By Francesco Canepa; editing by Balazs Koranyi and Conor Humphries)
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