European Central Bank Vice President Luis de Guindos told a news outlet that the bank still has the capacity to counter rises in bond yields.
“If we reach the conclusion that it will, then we are totally open to recalibrating our program, including the envelope of our Pandemic Emergency Purchase Programme if necessary,” de Guindos said, after commenting that the bank would need to see whether an increase in nominal yields would have a negative impact on the financial system. “We have room for maneuver, and we have ammunition.”
Regarding inflation concerns, he commented that the bank is revising up this year's inflation projections, though the rise is expected to be temporary and there are no concerns about short-term inflation.
His comments followed those of Bank of France Governor Francois Villeroy de Galhau, who said that the bank can and must react against any unwarranted rise in bond yields that could undermine the performance of the Eurozone economy. He added that the ECB should start using its bond purchasing program to push down bond yields.
“We continue to stand ready to adjust all of our instruments, as appropriate, including possibly a lowering of the deposit rate if needed,” said de Galhau.
ECB President Christine Lagarde joined them, saying that the bank would not allow financial costs to rise too quickly.
Last week, the European Central Bank decided to diminish its net purchases of debt, which has cast doubts on the current economic recovery process. According to the recently released data, the bank bought 13.7 billion euros-worth of debt in the last week of February, below the 23.2 billion euros of the previous week. The ECB explained that this is linked to the increase in redemptions, though some investors were not convinced by this explanation.
By 10:44 GMT, the euro fell by 0.21% against the US dollar to the 1.2022 level.