LONDON (Reuters) – Long-term interest rates on euro zone debt are bound to rise as the pile of bonds bought by the European Central Bank’s under its stimulus program ages and its effect on the market wanes, the ECB’s chief economist Peter Praet said on Tuesday.
Praet’s remarks suggested the ECB was happy to let long-term borrowing costs in the euro area rise as it stops adding to the 2.6 trillion euro bond stash built in nearly four years trying to revive inflation in the euro zone.
“At some point, this passive loss of duration will begin to exert increasing upward pressures on the term premia,” Praet told an audience in London.
“Over time, this gradual process will tend to steepen the yield curve, with our forward guidance on policy rates keeping the front end of the curve well-anchored.”
He backed analyst expectations for an ECB rate hike in late 2019 but said the central bank’s policy would remain predictable and only be tightened gradually.
In a likely reference to Italy, where the government is facing higher financing costs on the market as a result of its budget policy, Praet said yields did not just depend on monetary policy but also on an issuer’s financial health.
“Other factors such as economic fundamentals and the creditworthiness of issuers, as assessed by market participants, remain key determinants of the levels of bond yields and spreads,” he said.
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Source: Investing.com
