The ECB should be more cautious while implementing quantitative tightening policy

It’s reported that the European Central Bank (ECB) officials are immersed in thinking about bond redemptions, thus stepping on the path of quantitative tightening policy. The financial markets seem to create ideal conditions for such a policy, but they can be very dangerous.

It’s worth noting that officials are calm. The gap between German and Italian debt yields has narrowed amid such sentiment. In addition, it’s expected that this calm state can help officials boldly announce the principles of quantitative tightening policy. However, further action plans should be developed considering the risk of renewed instability.

Ute Rosen, a specialist at Union Investment, says that at the moment the situation isn’t the easiest. For example, the ECB might think it's time for quantitative easing because the spreads have narrowed. However, according to Rosen, there is a high probability of facing a situation when this withdrawal of liquidity will be too big for the market.