ECB’s Nagel: Markets Should Cope Well with Passive Phasing-Out of APP from 1Q 2023

2 December 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday said that financial markets would be able to deal with the passive roll-off as of next quarter of assets acquired under the ECB’s Asset Purchase Programme (APP).

According to a presentation posted to the website of the German Bundesbank, which he heads, Nagel said that ‘[t]he simplest and most transparent way to reduce the balance sheet would be to stop replacing maturing bonds’.

‘If we stop replacing maturing bonds in the APP portfolio, the bond portfolio will decrease automatically: month by month by the respective maturities’, he said.

‘The markets should cope well with a passive phasing out from the first quarter of 2023 onwards. They are sufficiently resilient, and monthly maturities in the near future are much lower than past monthly purchase volumes’, he said. ‘In addition, there are numerous safety nets in place.’

According to the presentation, Nagel argued that, with respect to monetary policy and the yield curve, this approach would be in line with ECB rate hikes, underscore authorities’ resolve to control inflation, and mitigate the scarcity of collateral and surfeit of liquidity.