13.08.2022
The total value of Cypriot bonds held by the European Central Bank (ECB) amounted to 4.29 billion euros after the completion of the Public Sector Purchase Program (PSPP) in July this year.
According to the ECB, in the last month of net purchases, the ECB bought 55 million euros worth of Cypriot bonds.
In addition, the weighted average duration of Cypriot bonds held by the ECB is 9.25 years.
In June, the ECB, through the Central Bank of Cyprus, purchased €41 million worth of Cypriot bonds, up from a net sale of €247 million the previous month after €1 billion worth of Cypriot bonds expired.
It should be noted that after the end of net purchases through the PSPP, the ECB announced its intention to reinvest the expiring bond amounts.
In addition, the balance of Cypriot bonds purchased under the Pandemic Emergency Purchase Program (PEPP) amounted to 2.64 billion euros.
Net purchases ended in March 2022, with the ECB stating that reinvestment of expiring amounts will continue until the end of 2024, with the ECB explaining that the program’s phasing out will be implemented “in a manner that does not interfere with the relevant monetary credit regulation.
Meanwhile, with inflation soaring, the ECB halted net bond purchases and in July embarked on the first rate hike in 11 years, stressing that “further normalization of interest rates is seen as appropriate at upcoming Governing Council meetings.”
In addition, in an effort to prevent the monetization of eurozone sovereign bond yields in secondary markets, the ECB announced the approval of the Transfer Protection Instrument (TPI), which will focus on government bonds and other sovereigns, while private bonds may also be considered . if they deem it necessary.
“As the Governing Council continues to smooth monetary policy, TPI will ensure the smooth transfer of monetary policy direction to eurozone countries,” the ECB said.
“TPI can be activated to offset unwanted, volatile market movements that pose a serious threat to the conduct of monetary policy in the euro area,” the commission added.
However, TPI activation comes with a number of conditions, coupled with compliance with the European fiscal system, as well as the absence of an excessive wealth deficit procedure.
In addition, the conditions include that the country should not have serious macroeconomic imbalances, and if they do, the country will be excluded if it is determined that it does not take appropriate measures to correct them.
At the same time, there must be sustainability in terms of how public finances are managed, and it must also be established that the debt of each respective country is also sustainable.
Finally, under the terms of the TPI, an eligible country must pursue a prudent and sustainable fiscal policy and comply with its obligations under the Recovery and Resilience Fund (RRF), as well as country-specific guidance issued in the first half of this year.
