ECB reports differ on the pace of balance sheet reduction

<p>Christine Lagarde was asked today about the ECB balance sheet and responded that interest rates were their many policy lever. She added that they will eventually have a debate about the appropriate size of the balance sheet.</p><p>There have been varying calls for a faster balance sheet runoff including a <a href="https://www.bloomberg.com/news/articles/2023-06-28/some-ecb-officials-weigh-faster-reduction-of-bond-portfolio?leadSource=uverify%20wall" target="_blank" rel="nofollow">report </a>earlier today that some ECB officials are weighing a faster reduction in bond holdings.</p><p>The ECB holds some 5-trillion euros in government bonds and winding those down more-quickly could be a replacement for rate hikes.</p><p>However another report is now out from <a href="https://www.econostream-media.com/news/2023-06-28/exclusive%3A_ecb_insiders_reasonably_relaxed_about_current_pace_of_quantitative_tightening.html" target="_blank" rel="nofollow">Econostream </a>saying that ECB insiders are 'reasonably relaxed' about the current pace of QT and that a passive run-off is sufficient 'for now'.</p><p>One of the problems with faster bond sales is that it would add to paper losses that national central banks are showing on bond holdings.</p><p>Keep an eye on this debate because it could resurface in September, where a hike is 40% priced in for now.</p>

This article was written by Adam Button at www.forexlive.com.