ECB will act on unwarranted rise in borrowing costs, its VP says

FRANKFURT (Reuters) - The European Central Bank will act on any "detrimental" rise in borrowing costs and considers removing stimulus too early a bigger risk than acting too late, ECB Vice President Luis de Guindos said on Wednesday.

With borrowing costs rising last month, the ECB stepped up bond purchases to cap yields but some policymakers are now discussing a cut in bond purchases once the pandemic is brought under control in the second half of the year.

"At the moment, risks from the early withdrawal of policies are higher than the risks associated with keeping support measures in place," de Guindos told a hearing of the European Parliament's Committee on Economic and Monetary Affairs.

Several policymakers including ECB chief Christine Lagarde have expressed satisfaction in the market's reaction to the bank's March decision to "significantly" increase bond purchases and de Guindos said the ECB would act again if markets were out of sync with real economic developments.

"We are continuously monitoring favourable financing conditions and this is going to be our guide in the short and medium term, and if we notice... that there is a detrimental tightening of financing conditions, we will react; this is part of our commitment in the short term, until the pandemic is over," he said.

Although de Guindos said that the timely approval of the European Union's 750 billion euro ($897 billion) fiscal package was crucial, he played down concerns about a possible delay, arguing that it was a structural instrument aimed at raising the bloc's long-term growth potential.

($1 = 0.8361 euros)

(Reporting by Balazs Koranyi; Editing by Hugh Lawson and Kim Coghill)