The European Central Bank (ECB) agreed to start discussions on shrinking its balance sheet in early October, according to report from Financial Times on Friday. This will increase the pressure on the already stretched budgets of southern European governments.
The change would pave the way for ECB to be alike the other major central banks, such as the US Federal Reserve and Bank of England.
Noteworthy, the UK and US central banks have already started to shrink their bond portfolios as part of their efforts to tackle soaring inflation by pushing up financing costs.
Later on Thursday the ECB president Christine Lagarde said that “now is not the time” to start shrinking its bond holdings.
The ECB’s balance sheet including assets held by national central banks in the eurozone increased from €2.21 trillion at the end of 2014 to €8.76 trillion this summer.
This increase is on the back of bond purchases to tackle low inflation and support the economy during the COVID-19 pandemic.
ECB is expected to decide by the end of the year to reduce the amount of maturing bonds it replaces in a portfolio of mostly government securities that it only stopped adding to in July.
The discussion is due to start at the governing council’s meeting in Cyprus on October 5, when it will not be making monetary policy decisions. Any announcement on the issue is not expected until later in the year, with the first opportunity coming at the October 27 monetary policy meeting in Frankfurt.
