Second, it seems reasonable to wait and observe potential ripple effects of TLTRO III repayments in bond markets before starting the bond portfolio run-off, as it will allow us to assess the effective impact of balance sheet reduction on financial conditions. After first allowing markets to absorb significant TLTRO III repayments, the normalisation of the ECB’s balance sheet could be followed by ending full reinvestment of the APP portfolio. As announced by President Lagarde last month, we will decide on the key principles of the reduction of our APP portfolio at our December monetary policy meeting. And why we should end APP reinvestments before PEPP reinvestments? In my opinion, a “first-in-first-out” staggered approach is preferable for at least two reasons. First, PEPP reinvestments remain an important line of defence against (pandemic-related) fragmentation episodes, so they are potentially pledged for reallocation across jurisdictions while the lasting vulnerabilities caused by the pandemic continue to pose a risk to the smooth transmission of our monetary policy. Second, we previously declared that PEPP reinvestments will not end up until at least the end of 2024, while our forward guidance on APP reinvestments was open-ended. We have clearly stated our intention to continue APP reinvestments for an extended period of time past the date when we started raising the key ECB interest rates. Moreover, our balance sheet policy will depend too on the operational framework that we adopt for the foreseeable future.
Successful further cooperation along these lines is in the interests of us all. BIS Review 77/2010  1