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ECB’s de Guindos says credit still cheap, cautious on stimulus withdrawal By Reuters

© Reuters. FILE PHOTO: Vice-President of the European Central Bank (ECB) Luis de Guindos gives a statement during the second day of the Informal Meeting of EU Ministers for Economics and Financial Affairs in Berlin, Germany September 12, 2020. Odd Andersen/Pool via

FRANKFURT (Reuters) -Euro zone borrowers can still finance themselves cheaply despite a recent rise in bond yields, but the European Central Bank should be cautious in removing support for the debt market, ECB Vice President Luis de Guindos said on Wednesday.

With infections falling and the euro zone’s economy slowly reopening, investors have begun to factor in a reduction in the pace of ECB bond purchases, causing borrowing costs on financial markets to rise in recent weeks. [GVD/EUR]

De Guindos said the present level of bond yields was still conducive to “favourable” financing conditions – ECB-speak for a level of borrowing costs it is comfortable with.

“The present level of yields permits that the financing conditions of the governments as well as… for households and corporates are favourable,” de Guindos told a news conference.

But he repeated his call for erring on the side of caution when it comes to withdrawing monetary stimulus.

“It has to be gradual, it has to be very prudent, it has to be in parallel with the evolution of the recovery of the economy,” de Guindos said.

“My personal view is that we should err on the side of prudence. It is much better to be prudent than be a little too aggressive in terms of phasing out the support measures.”

The ECB’s Governing Council will decide on June 10 whether to slow down, maintain or increase the pace of its Pandemic Emergency Purchase Programme, which is running at roughly 80 billion euros ($98 billion) a month at present.

Ten-year German yields, a benchmark for the euro zone, are at their highest level since mid-2019, holding not far below zero.

De Guindos said the ECB was prepared to act if it deemed a rise in yields to be “unwarranted” but not if it was accompanied by an economic recovery.

“If the rise in yields in unwarranted, then we will act,” he told CNBC. “If there’s a recovery going on, if inflation starts to go up and normalise economic activity, then nominal yields will have to go up.”

($1 = 0.8186 euros)

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