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FRANKFURT, Nov 9 - The European Central Bank's balance sheet needs to be much smaller but cannot shrink back to levels seen in its early years, ECB chief economist Philip Lane said on Thursday, firing the starting gun in a key policy debate.
The ECB promised to devise by the spring a new framework for steering short term interest rates after a decade of massive money printing, which flooded the banking system with some 3.6 trillion euros worth of excess cash via bond purchases and loans. "The appropriate level of central bank reserves can be expected to remain much higher and be more volatile in this new steady state compared to the relatively-low levels that prevailed before the global financial crisis," Lane told a conference.
Total assets owned by the ECB have already fallen by nearly two trillion euros from their peak but at seven trillion euros, they are still well above the one to two trillion euro range seen in the early years of the central bank.
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