ECB must not hesitate to raise bond buys to rein in yields: Panetta

FRANKFURT: The European Central Bank should expand bond purchases or even increase the quota earmarked for them if needed to keep yields down, ECB board member Fabio Panetta said on Tuesday, after weeks of steady increases in borrowing costs.

Yields have been rising since the start of the year, mostly on a similar trend for US Treasuries, and several ECB policymakers have already called for increased spending through its Pandemic Emergency Purchase Programme to keep borrowing costs low.

"We should not hesitate to increase the volume of purchases and to spend the entire PEPP envelope or more if needed," Panetta said in a speech. "By keeping nominal yields low for longer, we can provide a strong anchor to preserve accommodative financing conditions."

Just under 1 trillion euros ($1.20 trillion) of the ECB's PEPP quota is still unused and until the recent yield rise, policymakers argued that the ECB did not necessarily have to spend this amount.

But Panetta, striking a dovish tone little more than a week before the ECB's next policy meeting, argued that the risk of providing too little policy support far outweighed the risk of doing too much.

"Eventually, firm commitment to steering the euro area yield curve may allow us to slow the pace of our purchases," he added.

The recent inflation surge, partly blamed for the yield rise, is mostly temporary while near-term growth risks are on the rise given the slow progress of COVID-19 vaccinations and an extension of lockdowns, Panetta argued.

"My main message today can be summed up with the title of a song by the electronic music duo Daft Punk: 'Harder, better, faster, stronger,'" Panetta said.