Borrowing costs

ECB to act on unjustified rise in borrowing costs, vice president says

FILE PHOTO: European Central Bank (ECB) Vice-President Luis de Guindos makes a statement during the second day of the informal meeting of EU economy and finance ministers in Berlin, Germany , September 12, 2020. Odd Andersen/Pool via Reuters

FRANKFURT (Reuters) – The European Central Bank will act on a “damaging” rise in borrowing costs and sees removing stimulus too soon as a greater risk than action too late, it said on Wednesday. ECB Vice-President Luis de Guindos.

With borrowing costs rising last month, the ECB stepped up bond purchases to cap yields, but some policymakers are now discussing a reduction in bond purchases once the pandemic is brought under control in the second half of the year.

“At the moment, the risks associated with withdrawing policies early are higher than the risks associated with keeping the support measures in place,” de Guindos told a hearing of the European Parliament’s Economic and Monetary Affairs Committee. .

Several politicians, including ECB chief Christine Lagarde, expressed satisfaction with the market’s reaction to the bank’s decision in March to “significantly” increase bond purchases and Guindos said that the ECB would act again if the markets were not synchronized with real economic developments.

“We are constantly monitoring favorable financing conditions and this is going to be our guide in the short to medium term, and if we see… that there is a detrimental tightening of financing conditions, we will react; this is part of our short-term commitment, until the pandemic is over,” he said.

Although de Guindos said the timely approval of the European Union’s 750 billion euro ($897 billion) budget package was crucial, he played down concerns about a possible delay, arguing that it it was a structural instrument to increase the block’s long-term growth potential. .

($1 = 0.8361 euros)

Reporting by Balazs Koranyi; Editing by Hugh Lawson and Kim Coghill