The European Central Bank will decide to wind down its government bond purchases based on inflation even if the spreads for any country would rise as a consequence, ECB Executive Board member Peter Praet said.
“As a central bank, we conduct monetary policy for the whole of the euro area,” Praet, who is also the ECB chief economist, said in an interview to the German magazine Der Spiegel.
“If the spreads for a particular country rise, that’s not a monetary policy problem.”
The interview was published on Thursday and the transcript was posted on the bank’s website.
Heavily indebted Eurozone countries such as Italy, Spain and Portugal risk facing rising borrowing costs once the ECB starts winding down its EUR 2.3 trillion asset purchase scheme.
Higher yields could put more burden on these countries and slow their economic recovery.
“We are not singling out particular countries and neither are we there to ensure governments have favorable financing conditions,” Praet said.
“When the day comes, we will look at inflation and act accordingly, regardless of whether governments complain.”
Citing a recent comment by the Italian Finance Minister Pier Carlo Padoan, Praet said, “We forewarned them and they clearly understood that.”
The minister had said, “When the bond purchases come to an end, we are on our own.” Praet said Padoan was right.
In its June 8 policy session, the European Central Bank its very first step towards exiting its massive stimulus by shedding its downward bias on interest rates in its forward guidance.
The asset purchases are set to continue till the end of this year. Economists expect the ECB to announce a tapering move in September. The bank has already signaled that when tapering happens, it would be gradual, meaning it be distributed over several months.
Some economists also expect the bank to trim the size of the asset purchase scheme, owing to bond scarcity, but extend the duration.
Regarding Brexit, Praet called it a “huge mistake” and stressed that it…