By Yoruk Bahceli
(Reuters) – The European Central Bank will continue partial reinvestments of flows from its bond holdings in line with current practice once it starts running down its 5 trillion euro portfolio from March, it said on Thursday.
The ECB is laying out details after it announced in December it would run bonds off its balance sheet at an average pace of 15 billion euros per month from March through June.
It will do so by not fully reinvesting proceeds from maturing debt bought under its conventional bond purchase programme, the APP, from 2015 as the ECB tried to contain deflation risks in the euro zone.
The process is known as quantitative tightening, or QT.
The ECB will allocate proceeds remaining after the rundown proportionally to upcoming maturities across its public sector, corporate, covered bond and asset-backed security portfolios, it said in a statement.
For its public sector holdings, it will reinvest in proportion to upcoming redemptions by each country and across governments versus supranational debt, the bank said.
Following December’s decision, “I think we’re adding two principles that will matter, which is simplicity and neutrality,” ECB chief Christine Lagarde told a news conference.
“So that you know, we don’t do things in an overly complicated manner and we simply apply the proportionality principle to the portfolio across jurisdictions,” Lagarde added.
The ECB said it will also would skew remaining corporate debt reinvestments “more strongly” towards companies with a better climate performance, enhancing a process it first started in October.
“Without prejudice to the ECB’s price stability objective, this approach will support the gradual decarbonisation of the Eurosystem’s corporate bond holdings, in line with the goals of the Paris Agreement,” the ECB said in a statement.
The statement came as the ECB announced another 50 basis point rise in interest rates.
By raising longer-term borrowing costs, the wind-down should tighten financial conditions, making it more expensive for firms and governments to borrow.
More details will follow in a statement at 1445 GMT following Lagarde’s news conference.
(Reporting by Yoruk Bahceli; Editing by Catherine Evans)
