Bloomberg reports that Governing Council member Martins Kazaks said that the European Central Bank’s faster pace of emergency bond buying to rein in bond yields is a temporary strategy that will only last until the economy is stronger.
“If the economy performs better, it could be possible to provide less support,” Kazaks said. A “rise in yields will need to be accepted. But it should be gradual to avoid premature tightening.”
The remarks by Latvia’s governor highlight the fine line the ECB is walking as it strives to honor its pledge to keep financial conditions “favorable” through the pandemic. Policy makers have differed in their views on how much higher borrowing costs reflect budding economic optimism, and how much is an unwarranted spillover from the stronger U.S. rebound and fiscal stimulus.
“I would like to see growth more visibly,” Kazaks said. “I want to get more confidence that this recovery is really under way. We don’t know how the third wave of Covid will play out.”
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