Policymakers Saw Recent Bond Yield Rise Premature, ECB Mintues Show

Policymakers saw the recent rise in bond yields was largely premature for the euro area and that warranted the maintenance of an ample degree of stimulus, the minutes of the European Central Bank’s March 10-11 meeting showed Thursday.

“The recent tightening of financing conditions was generally seen as premature for the euro area, which was still in a weaker cyclical position than the United States,” the minutes, which the ECB calls the “account” said.

The ECB staff projections in March were largely unchanged from December.

“This was widely seen to call for a continuing high degree of accommodation,” the minutes said.

In the March policy session, the ECB decided to leave interest rates unchanged and to conduct asset purchases under the EUR 1,850 billion pandemic emergency purchase program, or PEPP, at a significantly higher pace over the next quarter.

An argument was also put forward that higher real rates were not necessarily a cause for concern and should not trigger a policy intervention if they reflected higher growth prospects rather than higher real term premia, the minutes said.

Members agreed that the PEPP purchase volume needed to be increased significantly to give a clear message to markets on the Governing Council’s “reaction function”.

Policymakers also stressed the need to avoid giving the impression of being overly focused on sovereign yields or reacting mechanically to a set of indicators of financing conditions.

“Moreover, the view was put forward that the tightening might not be sizeable and persistent enough to affect broader financing conditions materially,” the minutes said.

Rate-setters also highlighted that the flexibility embodied in the PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions.

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