ECB’s Reinesch: Should Agree No Later Than December to Bring Forward End of PEPP Investments

12 October 2023

By David Barwick – FRANKFURT (Econostream) – The European Central Bank should decide by the end of this year to accelerate the termination of investments under the pandemic emergency purchase programme (PEPP), according to ECB Governing Council member Gaston Reinesch.

In an interview with Politico published on Monday but previously unnoticed in the cacophony of policymaker comments this week, Reinesch, who heads the Central Bank of Luxembourg, was quoted as saying, ‘In order to support directionally the current monetary policy stance, it would … not be entirely groundless to bring forward the end of PEPP investments.’

‘Such a decision ideally, in the absence of adverse surprises, would be taken in December at the latest and provide markets with sufficient lead-time before the start of a gradual reduction in reinvestment’, he said.

According to Politico, bond market fragility hadn’t at this point dissuaded Reinesch from thinking that the ECB could still find it necessary to hike interest rates again, and he argued that ‘it would certainly be premature to give an all-clear on the inflation front and to exclude the possibility of a need for a further rate hike.’

As to whether he thought the ECB might need to deploy the transmission protection instrument to deal with unwarranted spreads, he responded, ‘No, I don’t think so. Never say never, but right now I do not see it. Nobody seems to see it.’

Reinesch was less receptive than other hawkish colleagues to boosting the ECB’s minimum reserve requirements, Politico reported.

‘Let me first recall that in December 2011, the Governing Council had decided to reduce the minimum reserve ratio to 1% from 2%. The decision was part of a package of measures to support bank lending and liquidity in the euro area money market’, he said. ‘Thus, raising the reserve ratio from currently 1%, per se, would certainly not be incoherent with the current monetary policy stance. But this said, it might be preferable to consider the question of an appropriate minimum reserve ratio in the context of the holistic review of the operational framework.’