FRANKFURT: European Central Bank policymakers at their meeting last month debated a smaller increase in bond purchases and agreed to front-load the buying this quarter on condition it could be cut later if conditions allow, the accounts of their meeting showed on Thursday.
Worried that rising yields would derail an eventual recovery, policymakers in March decided to "significantly" increase bond purchases and undo some of the rise in borrowing costs, which was deemed a reflection of a global repricing rather than improved economic prospects.
Monthly bond buys under the ECB's 1.85 trillion-euro Pandemic Emergency Purchase Programme jumped by over a fifth last month, enough to stabilize nominal bond yields and push inflation-adjusted yields back to their early-year lows.
However, some policymakers argued that a smaller increase in bond purchases would better reflect a more balanced risk assessment and expectations for faster growth.
"All members joined a broad consensus around the proposal put forward by (chief economist Philip) Lane, on the understanding that the total PEPP envelope was not being called into question in the current conditions and that the pace of purchases could be reduced in the future," the account of the March 10-11 meeting showed.
"It was underlined that the flexibility embodied in the PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions," the ECB said.
The ECB will next review the pace of purchases in June. Several policymakers, including Dutch central bank chief Klaas Knot and Austria's Robert Holzmann, have already expressed hope the ECB could start reducing the buys in the third quarter as the pace of vaccinations picks up and the health crisis abates.
The accounts also showed a rift in views on the assessment of the rise in yields. Policymakers agreed that the increase was premature, but some argued that it was not significant, reflected better inflation prospects, and borrowing costs were still very low.
Some also argued that a rise in government bond yields needed to be significant and persistent to affect borrowing costs.
"It was argued that higher real rates were not necessarily a cause for concern and should not trigger a policy intervention if they reflected higher growth prospects rather than higher real term premia," the ECB said.
The ECB next meets on April 22, but that session is seen as more of a placeholder meeting, as the outlook remains stable and highly depends on the pace of vaccinations.