Background on ECB’s Previous Actions
The European Central Bank (ECB) has been gradually reducing the trillions of euros it injected into the financial system through a series of bond-buying programs between 2015 and 2022. This was an attempt to stimulate inflation, which was then considered too low.
Isabel Schnabel’s Statement on ECB’s Current Stance
Isabel Schnabel, a member of the ECB’s Governing Council and responsible for market operations, stated on November 6 that the bank is not yet ready to restart bond purchases to inject liquidity into the banking system.
Schnabel explained that the ECB must first offload more bonds than it purchased over a decade of accommodative monetary policy before considering new bond purchases.
Quantitative Easing Normalization
The ongoing process of “quantitative easing normalization” will continue until Schnabel and her fellow council members deem that there are sufficient bond reductions from the central bank’s balance sheet, she said.
“New portfolio purchases will only commence once the liquidity injected through our inherited monetary policy bond portfolios and net financial assets position are deemed insufficient to cover the portion of reserves that the Governing Council has decided to provide via securities holdings,” Schnabel explained.
Key Questions and Answers
- Q: What has the ECB been doing since 2015? A: The ECB has been gradually reducing the trillions of euros it injected into the financial system through bond-buying programs, aiming to stimulate inflation.
- Q: Who is Isabel Schnabel and what role does she play at the ECB? A: Isabel Schnabel is a member of the ECB’s Governing Council and is responsible for market operations. She clarified the bank’s stance on future bond purchases.
- Q: Why isn’t the ECB ready for new bond purchases? A: The ECB must first offload more bonds than it purchased over the past decade before considering new bond purchases, according to Schnabel.
- Q: What is the ongoing process called? A: The ongoing process is referred to as “quantitative easing normalization,” which involves reducing the bond holdings on the central bank’s balance sheet.
- Q: What conditions must be met before new bond purchases can begin? A: New portfolio purchases will only commence once the liquidity from bond portfolios and net financial assets is deemed insufficient to cover the designated reserves, as per Schnabel’s statement.
