Saturday 18 November 2017

Irish Central Bank to buy bonds through 2017

ECB President Mario Draghi Photo: REUTERS/Ralph Orlowski
ECB President Mario Draghi Photo: REUTERS/Ralph Orlowski
Donal O'Donovan

Donal O'Donovan

Mario Draghi caught markets off guard yesterday, when he announced that the European Central Bank (ECB) will start scaling back its bond buying spree from next April, reducing the monthly spend to €60m from €80m.

The ECB said it will reduce its purchases but maintain the so-called quantitative easing programme that keeps debt cheap for countries and big companies, until the end of 2017, three months longer than expected.

Bond analyst Ryan McGrath of Cantor Fitzgerald said the decision not to increase the amount of each country's bonds the ECB can buy was a surprise.

The Central Bank here, for the ECB, already holds close to a third of Irish government bonds, the maximum allowed.

In a crisis it could leave Ireland at a disadvantage with the ECB unable to smooth markets by buying up bonds - something it did after the Italian referendum this week.

"Ireland now risks being at a disadvantage to some of its peers at some point in 2017 as the ECB struggles to purchase Irish amounts consistent with an €80bn programme scaling back to €60bn in April," McGrath said.

Central Bank sources said the policy there will be to maintain a presence as a buyer in the market right to year end, regardless of the lower limit.

That would mean spreading purchases more thinly, or selling bonds into the market to maintain capacity.

"The Central Bank will manage the implementation of the purchase programmes carefully, so that the impact of the programme parameters or any changes in these parameters, would be as smooth as possible," a spokeswoman said.

Irish Independent

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