A woman walks past a closed cafe as Rome becomes a “red zone”, entering blockade, as the country struggles to reduce coronavirus disease infections (COVID-19), in Rome, Italy, on 15 March 2021.
Yara Nardi | Reuters
LONDON – European Central Bank Governing Council member Klaas Knot said on Thursday that he did not want to see a premature advance in government bond yields and that the ECB could take steps to address it if necessary.
Speaking to CNBC, Knot said it would be legitimate for the ECB to anticipate bond purchases as part of its pandemic emergency program if rising yields in other regions began to affect the eurozone.
“If this (increased bond yields) is due to better growth and inflation prospects, it’s totally benign, but if it’s due to spills from different regions of the world, I think it’s entirely legitimate that we anticipate temporarily some of the purchases, ”said Knot, who is also chairman of the Dutch central bank.
“Because we do not want the bond yields to prematurely tighten our financing conditions. And by ‘prematurely’ I mean a tightening that would precede real growth improvement, real growth recovery and inflation in the area of the euro “.
His comments come after the ECB decided at its last meeting in early March to increase bond purchases within its pandemic emergency purchasing program (PEPP). It does not plan to expand the overall size of the program, but wants to buy more within the current limits, as it appears to keep borrowing costs low for eurozone governments.
The decision came amid rising corporate bond yields, which worried ECB officials about derailing the region’s economic recovery.
The eurozone is still waiting for funding for coronavirus aid at EU level and many countries are facing a third wave of infections as the pace of vaccinations is in other parts of the world. All these factors represent risks for the 19 economies that share the euro.
The EU’s plan to disburse 750 billion euros ($ 890 billion) to the entire bloc suffered again in March, when the German constitutional court prevented its approval, leading to a cloud of uncertainty about when these much-needed funds will begin to be disbursed. the region.
Knot told CNBC he is confident these issues will be resolved, however, and that the first funds will arrive later this year.
The “unlikely” euro stimulus coincides with the US “
However, Knot said the eurozone’s fiscal stimulus – a combination of EU funds and national efforts – “is unlikely to match US numbers”
“Obviously we can’t present such staggering figures,” he said, but added that he believes the eurozone is more efficient than the United States in using the funds.
The ECB has forecast a rate of 4% of GDP (gross domestic product) for the euro area this year, after the region contracted by almost 7% in 2020. The central bank sees GDP as a 2.3% above pre-crisis levels at the end of 2023.
However, these forecasts depend to a large extent on the evolution of the pandemic and the speed with which euro nations are vaccinating their populations. As blockades persist in many parts of the region, experts are wondering if governments will have to do more on the fiscal front in the coming months.
“Right now, I think the response is appropriate, but if the response needs to be intensified, I think there is will and preparation on the part of the tax authorities to intensify the tax response,” Knot, who is seen as a more deficient member of the ECB, he added. So-called hawks tend to be in favor of higher interest rates in an effort to keep inflation under control.