Exclusive: QT Not a ‘Current Issue’ as ECB Starts Hiking, But Need to Prepare Already Talked About

13 June 2022

- ECB insider: ‘There are views that we need to start more general discussions’ about QT
- ECB insider: ‘Time to start talking now for [QT] decisions to be ready sometime later in the future’

By David Barwick – FRANKFURT (Econostream) – The European Central Bank, understandably nervous about the first increase in official borrowing costs in 11 years, is glad to dispel the notion that quantitative tightening is anywhere close at hand, but informal discussion of the subject may have already started, Econostream understands.

ECB President Christine Lagarde was probably glad at the press conference following last week’s Governing Council meeting that the only question on QT was framed in terms of the ECB’s policy of reinvesting maturing assets.

Asked whether the continued adherence to this policy remained appropriate as the ECB embarked on a hiking cycle, Lagarde indicated that reinvestment had not been on the meeting’s agenda but would be discussed at some point. From there, she segued into a brief discourse on how reinvestment decisions could reflect flexibility- and climate transition-related considerations.

The subtext of such an answer might be understood to be that if reinvestments are to continue, then there is little point in talking about QT and observers need not worry about the subject.

Had she been pressed, Lagarde might have repeated what she said in response to a more explicit QT question at the previous such occasion on April 14: ‘Quantitative tightening is something that comes clearly at a later stage in that journey, and we are not there yet.’

Although actual QT is indeed something for ‘a later stage’, more formal preliminary discussion may not be that far off, and, according to one ECB insider, the need to discuss it officially is itself already being talked about.

‘There are views that we need to start more general discussions’, this person said following last week’s Council meeting. ‘It was not discussed [formally]. So, it’s not on the table at this particular point in time. My view is we should start talking.’

Though ECB policy is now ‘working on the short-term end of the yield curve’, he said, ‘eventually we have to take a broader perspective, and it’s time to start talking now for decisions to be ready sometime later in the future.’

The actual implementation of QT was not a ‘current issue’, he made clear. ‘Now we are just dealing with interest rate hikes. That’s the first thing.’

‘But we should start talking in the sense that we discuss how, when, what proportions, what about reinvestments’, he said. ‘But it’s more a general talking, more like preparation for decision-making.’

A discussion of when to make QT a formal agenda item is already underway, he said: ‘There are views that we need to start talking, so we are talking about future talking.’