MNI BRIEF: ECB To Factor Balance Sheet Into Cuts -Cipollone

MNI (ROME) - The European Central Bank needs to ensure that factors in the tightening effect of its balance sheet reduction “when calibrating our rate cuts to achieve our inflation aim”, as it approaches to neutral level, ECB executive board member Piero Cipollone in an MNI Connect livestreamed event.

The reduction of ECB’s balance sheet push in the direction tighten financing conditions, Cipollone said, noting that , “while our rate cuts exert downward pressure primarily at the short end of the yield curve, our quantitative tightening exerts upward pressure on long-term maturities and, to a lesser extent, intermediate ones”.

“the runoff of the asset portfolios of central banks has arguably been one of several factors contributing to a steepening of sovereign yield curves in recent months”, he said, adding that the ECB needs to find the right balance to achieve the 2% target without an undue negative on incomes and employment. (See MNI: ECB Rate Shift Gives Added Focus To Deposit Facility Rate)