PARIS (Reuters) – The European Central Bank should keep some of the flexibility offered under its pandemic asset purchase programme when it returns to more conventional policy, ECB policymaker Francois Villeroy de Galhau said on Tuesday.
With the ECB widely expected to wind down its emergency bond purchases in March, a debate has started on how much debt it will continue buying afterwards under its regular asset purchase programme (APP). A decision is likely to be taken in December.
“The APP might benefit, still more than from increased fixed volumes, from adding some forms of flexibility of purchases over time,” Villeroy told an online conference.
Despite a recent spike in inflation, Villeroy said there was a greater risk it would fall short of the ECB’s 2% target in 2023, which he said warranted keeping monetary policy loose.
Exiting the ECB’s Pandemic Emergency Purchase Programme (PEPP), via which it has pumped 1.4 trillion euros ($1.6 trillion) into the bond market since March 2020, would therefore not spell the end of its accommodative monetary policy, he said.
Villeroy said the PEPP’s flexibility across asset classes and jurisdictions had been a powerful way to get liquidity flowing to the economy during the crisis.
“This allows us to intervene more effectively in specific market segments when it is most needed, and to prevent unwarranted fragmentation,” Villeroy said.
With a total envelope of 1.85 trillion euros, the ECB has comparatively more freedom under the PEPP in terms of how much and when it buys assets than under the older APP, under which net purchases are set at 20 billion euros per month.
($1 = 0.8655 euros)
(Reporting by Leigh Thomas; Editing by Catherine Evans)