ECB’s Wunsch: PEPP Reinvestments Need Rediscussing

17 November 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Pierre Wunsch on Friday said that the only reason to maintain the practice of reinvestments under the pandemic emergency purchase program (PEPP) was because the ECB had once committed to this, but that it was now necessary to consider the matter anew.

In a panel discussion at the European Banking Congress, Wunsch, who heads the National Bank of Belgium said that he believed the PEPP was ‘a commitment that has no value today, we should reopen the discussion. It’s a major issue? We are going to stop reinvestments anyway relatively soon. So, I would plead for reopening the discussion and maybe accelerating it a little bit.’

The reinvestments had lost their purpose, he said: ‘So I think we should stop that as soon as possible.’

‘We need to make it clear: is it about the size of balance sheet? And then I would say the PEPP is a really low-hanging fruit. So let’s open the discussion first’, he said.

‘If it’s about something else besides the balance sheets, profits, then we need to discuss the rules of engagement’, he added.

It was unwise to ignore the impact of geopolitical events on oil prices, especially if they unbalanced the economy to the point of stagflation, he said.

‘[M]y bet would be that we cannot look through and we’d probably have to tighten more if we see some major impacts in prices’, he said.

With respect to interest rates, he referred to Bundesbank President Joachim Nagel’s speech earlier at the same event and echoed the sentiment that the ECB wanted to be certain about having reached the 2% inflation target before starting to reduce interest rates.