The Eurosystem’s holdings of Cypriot bonds have dipped below €7 billion, reflecting the European Central Bank’s ongoing efforts to combat inflation by downsizing its balance sheet.
Based on data analysed by the Cyprus News Agency (CNA), the Eurosystem’s balance sheet now registers Cypriot bonds at approximately €6.7 billion. This reduction in holdings can be primarily attributed to the Public Sector Asset Purchase Programs (PSPP) and the Pandemic Emergency Purchase Program (PEPP).
According to the ECB’s own figures, the value of Cypriot bonds within the PSPP portfolio decreased to €4.29 billion by the end of August, with no new purchases during that month. Furthermore, there were sales of Cypriot bonds totalling €285 million in July. It’s important to note that the data for August only reflects bond sales since reinvestment from bond maturities ceased at the end of July. By the close of August, the total PSPP portfolio balance had shrunk by €16.6 billion, standing at €2.65 billion.
Simultaneously, the value of Cypriot bonds in the PEPP portfolio reached €2.39 billion at the end of July, with sales of €156 million occurring in the June-July period. The overall PEPP portfolio, as of the end of July, had decreased by €327 million and amounted to €1.66 trillion.
Notably, net bond purchases through the PEPP ceased in March 2022, and bonds maturing up until the end of 2024 will be entirely reinvested. The ECB’s Governing Council confirmed during its latest meeting that it will manage the future roll-off of the PEPP portfolio to ensure it doesn’t interfere with the appropriate monetary policy stance.
Starting in July 2022, the ECB embarked on a course of restrictive monetary policy, scaling back asset purchase programs to reduce market liquidity. This move was part of the effort to curb inflation, which had soared to record levels in 2022, exacerbated by the situation in Ukraine.