LISBON, March 3 (Reuters) – Adopting yield curve control in the euro zone would be a difficult path to choose for the European Central Bank (ECB)after a recent surge in borrowing costs, its Governing Council member Mario Centeno was quoted as saying on Wednesday.
Fellow ECB policymaker Pablo Hernandez de Cos said in January the bank should explore the option of moving to yield curve control to raise inflation.
Bond yields surged in recent weeks on higher inflation expectations, stoking fears that higher borrowing costs will choke off Europe’s recovery.
The central banks in Japan and Australia are both capping government bond yields to keep borrowing costs stable, but critics see the policy as risky since the banks essentially pledge to buy unlimited quantities of bonds to ensure certain yield levels.
Centeno, who is also governor of the Bank of Portugal, told the online publication CentralBanking.com that “adopting yield curve control implies announcing the target price for government bonds at different maturities.”
“A central bank can only promise simultaneously specific nominal rates and inflation rates for an extended period of time as long as they are compatible with the long-run real interest rate that clears the market. And that will not be the easiest way forward,” he said.
He added, however, that ECB’s current instruments to deal with the pandemic-induced crisis “are working very well, preserving favourable financing conditions,” and helping to keep the yield curve in check.
The Pandemic Emergency Purchase Programme “has been particularly effective and efficient, ensuring that the middle- and long-end segments of the yield curve component of overall financing conditions remain appropriate,” he said, pointing out that the euro zone’s GDP-weighted sovereign yield curve was significantly below the pre-pandemic level
All eurozone countries can now borrow long-term at or below the debt costs of non-eurozone advanced economies, which he said shows the extent of the ECB’s monetary stimulus to mitigate the impact of the pandemic.
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