ECB’s de Guindos: To Lay Out Key Principles for Reducing Our Bond Holdings in December

14 November 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank will set forth in December the key principles of its approach to reducing the size of its balance sheet, Vice President Luis de Guindos said Monday.

In a speech at the 25th Frankfurt Euro Finance Week, de Guindos said that ‘currently high inflation is expected to stay above our target for an extended period’, so that monetary policy has to concentrate on weakening demand and warding off second-round effects, and thus ‘expect[s] to raise interest rates again.’

‘Amid the present uncertainty, future decisions on policy rates will continue to be data-dependent and taken on a meeting-by-meeting approach’, he said. ‘The policy decisions we will take at our next meeting will be based on various elements, including our December macroeconomic projections.’

‘At this meeting, we also expect to lay out the key principles for reducing the bond holdings in our monetary policy portfolios’, he continued. ‘We will proceed with prudence, continuing to normalise our monetary policy in line with our medium-term price stability objective.’

As a result of the continued increase of inflation over the course of 2022, a technical recession going into 2023 is possible, he said.

With price pressures ‘evident in more and more sectors’, high wage growth or above-target inflation expectations could materialise, he said, especially with job markets strong.

‘Indeed, incoming wage data and recent wage agreements indicate that wage dynamics may be picking up, which warrants continued monitoring’, he said. ‘However, to date, inflation expectations have remained anchored. Most measures of longer-term inflation expectations currently stand at around 2%, although we are attentive to recent above-target revisions to certain indicators.’