by Balazs Koranyi

WASHINGTON (Reuters) – A growing number of European Central Bank (ECB) officials are pushing for the issuing body to stop reinvesting amounts from maturities of securities held under the APP, its landmark program of bond purchases, in order to further reduce its balance sheet, reported sources familiar with the discussions.

The ECB still has 3.2 trillion euros of bonds held under its APP purchase program, built up in times of low inflation in hopes of reducing borrowing costs and boosting growth.

Since March, the APP program has been reduced by 15 billion euros per month.

National Bank of Belgium Governor Pierre Wunsch told Reuters on the sidelines of the spring meetings of the International Monetary Fund and the World Bank that he favored a total halt to reinvestment this year.

Five other sources told Reuters that, despite the recent turmoil in the banking sector, all reinvestments are expected to cease in the second half of the year, believing that balance sheet reduction is progressing too slowly given the priority given to controlling inflation.

None of the sources advocated the outright sale of public or private debt.

An ECB spokesman declined to comment.

The central bank should not implement an abrupt halt to reinvestment in order to retain some flexibility in the event of bouts of volatility, such as last month in the banking sector, the sources said.

They argued, however, that the euro zone had generally reacted well to these turbulences and that the ECB still had its transmission protection instrument, a debt purchase program which it has not yet used.

Martins Kazaks, Governor of the Bank of Latvia, took a measured view, saying reinvestments should stop when market conditions allow and not necessarily according to a timetable.

“We should accelerate quantitative tightening when we are confident that financial markets will be able to handle it,” he said.

The ECB has pledged to reduce its balance sheet by 15 billion euros per month until the end of June, before adjusting the pace over time.

The sources said that once these reinvestments are completed under the APP, the next discussions will focus on the Pandemic Emergency Purchase Program (PEPP) reinvestments, worth $1.68 trillion. euros.

(Report Balazs Koranyi, Laetitia Volga)

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