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European Central Bank to focus on shrinking balance sheet as markets bet on rate cuts
The European Central Bank meets this week with investors closely monitoring to see when the Frankfurt institution might start to cut interest rates. It will be too early to declare victory in the battle against inflation, but with inflation at a two-year low, it certainly gives the ECB’s Governing Council breathing space to focus on another important issue: its gigantic balance sheet. “Having reached its policy rate plateau at a 4% deposit rate, the ECB can now shrink its balance sheet at a faster pace without risking too much of a blowout in yield spreads within the euro zone,” said Holger Schmieding of ... (full story)