The Eurosystem has reported a decline in its Cypriot bond holdings to below €7 billion. This move aligns with the European Central Bank (ECB)'s ongoing strategy to deleverage its balance sheet in a bid to control inflation.

Recent data highlighted that through the Public Sector Purchase Programme (PSPP) and the Pandemic Emergency Purchase Programme (PEPP), the Cypriot bonds value on the Eurosystem's balance sheet now stands at €6.7 billion.

A closer look at the ECB data reveals a drop in the PSPP's Cypriot bonds to €4.29 billion as of August's end. Notably, this decline occurred without any new purchases. Meanwhile, July saw sales of Cypriot bonds, amounting to €285 million.

August's records from the ECB focus predominantly on bond sales, given that the reinvestments from bond maturities concluded at July's end. As of the close of August, the total portfolio balance decreased by a significant €16.6 billion, settling at €2.65 billion.

Furthermore, the PEPP portfolio's Cypriot bonds dwindled to €2.39 billion by July's end. The months of June and July witnessed sales totaling €156 million. Overall, the PEPP portfolio experienced a decline of €327 million by the end of July, with its total valuation at a staggering €1.66 trillion.

It's essential to note that since March 2022, net bond acquisitions via the PEPP have been suspended. However, bonds set to mature by 2024's end are slated for full reinvestment. The ECB's Governing Council, in its latest session, affirmed plans to adjust the PEPP portfolio's reduction, ensuring it doesn't disrupt monetary policy's intended trajectory.

As of July 2022, the ECB adopted a more restrictive monetary policy stance. The emphasis is on curbing asset purchase programs, a strategic move designed to limit market liquidity. This decision is driven by the ECB's dedication to keeping inflation in check, especially considering the record highs it hit in 2022, intensified by the ongoing conflict in Ukraine.