ECB Vice President Luis de Guindos said that Euro zone borrowers can still finance themselves cheaply despite a recent rise in bond yields. But the European Central Bank should be cautious in removing support for the debt market.
The investors have begun to factor in a reduction in the pace of ECB bond purchases. This is the result of the infections falling and the euro zone’s economy slowly reopening. In recent weeks this has caused the borrowing costs on financial markets to rise. De Guindos said the present level of bond yields was still conducive to favourable financing conditions. The ECB speaks for a level of borrowing costs it is comfortable with.
In a news conference Guindos said that the present level of yields permits that the financing conditions of the governments as well as for the households and corporates are favourable. But when it comes to withdrawing monetary stimulus, he repeated his call for erring on the side of caution. He told that it has to be gradual, it has to be very prudent and also it has to be in parallel with the evolution of the recovery of the economy.
His personal view is that they should err on the side of prudence. It is much better to be prudent than be a little too aggressive in terms of phasing out the support measures, he mentioned. The ECB’s Governing Council will decide on June 10 whether to slow down, maintain or increase the pace of its Pandemic Emergency Purchase Programme. At present it is running at roughly 80 billion euros ($98 billion) a month.
Ten-year German yields, a benchmark for the euro zone, are at their highest level since mid-2019, holding not far below zero. The ECB was prepared to act if it deemed a rise in yields to be unwarranted said Guindos. He added that it is not if it was accompanied by an economic recovery. He told the CNBC that they will act if the rise in yields is unwarranted. He stated that if there’s a recovery going on, if inflation starts to go up and normalise economic activity, then nominal yields will have to go up.