Joachim Nagel argues for ECB balance sheet reduction in Q1

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FRANKFURT (Reuters) – The European Central Bank (ECB) is to start shrinking its balance sheet in the first quarter of 2023 as part of the fight against inflation, said Joachim Nagel, a member of the Frankfurt institution and president of the Bundesbank .

The ECB has purchased more than 5 trillion in government and corporate bonds over the past ten years in an effort to keep interest rates low and boost inflation. But now, the priority is to fight against the rise in prices, which in November reached 10% over one year in the euro zone.

Joachim Nagel wants the ECB to start “quantitative tightening”, i.e. the reduction of its bond portfolio, from the beginning of next year, by not replacing bonds that are maturing , rather than making divestments.

This approach, he said, would allow bond yields to continue to rise. It would also mitigate the risk of insufficient collateral in the market and underline the ECB’s determination to reduce inflation, he said.

(Report Balazs Koranyi; French version Claude Chendjou, edited by Sophie Louet)

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