(Bloomberg) -- European Central Bank officials may soon revisit their €1.7 trillion ($1.9 trillion) pandemic bond portfolio and reconsider how long they will replace maturing securities, President Christine Lagarde said. 

“We have indicated that we would continue reinvesting until at least 2024,” she told European Parliament lawmakers on Monday. “This is a matter which will come probably for discussion and consideration within the Governing Council in the not-too-distant future, and we will reexamine possibly this proposal.”

While several officials have said they’re in favor of discussing an earlier start to the roll-off of the so-called PEPP program, Lagarde had remained more cautious on the issue. After the last policy meeting in October, she only said the issue hadn’t been discussed, without elaborating. 

Under current guidance, reinvestments are set to continue until the end of next year. Crucially, they can be deployed flexibly across jurisdictions to counter any fragmentation on the euro area’s bond market, which is why even some hawkish officials are hesitant to let go of the tool. 

Austrian central bank Governor Robert Holzmann said last week he favors a discussion on the matter at the December policy meeting, and a gradual reduction of reinvestments starting in March. 

Speaking about the economic outlook, Lagarde cited evidence of a weakening jobs market. That’s a key factor policymakers are watching to determine the impact of monetary tightening. 

“Despite the slowdown in activity, the labor market remains resilient overall, although there are some signs that job growth may lose momentum toward the end of the year,” she said.

The Frankfurt-based ECB took a pause from raising borrowing costs last month after 10 consecutive hikes. Analysts and investors don’t expect another increase in the deposit rate from its current 4% level, even if some officials insist that such a move remains possible.

The euro zone’s labor market has remained resilient even as the economy slowed, and the unemployment rate is expected to have held at 6.5% last month when new data is released Thursday. That’s barely above its record low reached in June.

Numbers the same day will probably show inflation slowed further in November, to 2.7%. Price gains are expected to tick up again in coming months because of volatile energy costs, however, and the latest ECB forecasts don’t see them returning to the 2% goal before the second half of 2025. Underlying price pressures also remain more elevated. 

Lagarde also said: 

  • “While the short-term outlook remains subdued, the economy is set to strengthen again over the coming years as inflation falls further, household real incomes recover and the demand for euro-area exports picks up”
  • “Looking ahead, we expect the weakening of inflationary pressures to continue, even though headline inflation may rise again slightly in the coming months, mainly owing to some base effects
    • “However, the medium-term outlook for inflation remains surrounded by considerable uncertainty”
  • “We expect that maintaining interest rates at current levels for a sufficiently long duration will make a substantial contribution to restoring price stability”
  • “This is not the time to start declaring victory. We need to remain attentive to the different forces affecting inflation and firmly focused on our mandate of price stability”

(Recasts with comments on PEPP program)

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