After drastically raising interest rates by 75 basis points at Thursday’s meeting, the ECB plans to further tighten policy by cutting the number of bonds it holds in its portfolio. Negotiations are due to start in October in Cyprus, as the bank’s management has already raised the question of how long it can hold the $5 trillion worth of bonds. euros, which he collected after systematic purchases for seven years. At the same time, the bank plans to reduce reinvestment through profits on expiring bonds, a process likely to begin by the end of the year.

The bank’s plans refer to a report from the Financial Times, whose publication led to an increase in eurozone bond yields, while the yield on 10-year Italian bonds increased by 4 basis points to 3.98%. According to the British newspaper, the reduction of the ECB portfolio will further increase the pressure on the budgets of the indebted countries of the European South. By reducing the number of bonds it will buy as reinvestment of yields from maturing bonds, the ECB will raise the cost of borrowing for eurozone countries at a time when it is already at its highest level in eight years. Significantly, yesterday morning the yield on the Italian 10-year bond rose even more, exceeding 4% and fixing levels more than five times compared to what it was a year earlier. However, it is clear that now the bank’s priority is to contain the alarmingly accelerating inflation.

Eurozone bond yields are rising, with Italy’s 10-year yield at 3.98%.

At the same time, this shift on the part of the ECB suggests further alignment of its policies with those of other major central banks, the US Federal Reserve and the Bank of England, which have already begun to reduce their portfolios in an attempt to stop prices rising. rising inflation.

The process is expected to start in the first quarter of next year. As ECB President Christine Lagarde said, “Now is not the time” to start cutting the bank’s balance sheet. The balance sheet of the ECB, including the assets of the national central banks of the euro area, increased from 2.21 trillion euros. euros, which at the end of 2014 amounted to 8.76 trillion. euro in recent months. This was due to the bank’s extensive bond buying to reduce inflation and support the eurozone economy during the recession caused by the coronavirus pandemic. With inflation now more than four times the ECB’s target of 9.1%, policy makers are beginning to reconsider the feasibility of keeping portfolios at their current size.

As a source close to the relevant talks pointed out, “At the point where we are now, the more we raise interest rates, the more absurd it seems to support this inflated balance sheet and reinvestment program with bond earnings.” However, the same source added that the reinvestment of redemption bond earnings may continue, but does not have to be equal to the redemption bond earnings.”