Monday 18 December 2017

Calm lets ECB step back from state bond purchasing

Portuguese fears force return to market after three-week lull

Donal O'Donovan

The European Central Bank (ECB) held off buying government bonds for three weeks in a row according to data released last night.

That dry run ended when the bank stepped back into the market on Thursday, traders said.

The ECB has spent €76.5bn buying government bonds since May last year, targeting the purchases to stabilise prices when private sector investments looked likely to drive up borrowing costs for governments.

The three weeks without a purchase is only the second time since May that the bank has stayed out of the market for so long.

The market was calm over the recent three weeks, allowing the ECB to step back from the purchases without causing a sell-off, Padhraic Garvey of ING Bank in Amsterdam told the Irish Independent.

However, he said the recent calm was fragile. The ECB was forced to come back into the market last Thursday after Portuguese bonds came under pressure from nervous investors and Portugal's cost of borrowing passed 7.5pc for the first time since the creation of the euro.

"The market has been calm, but the mood is still very tense," Mr Garvey said. As a result, the ECB has not been able to completely step back from the purchase programme.

Mr Garvey said the market had been calmed because investors had "bought the rumour that eurozone leaders will announce something impressive in March".

The market expects euro leaders to sign off on a plan to increase the fire power of the European Financial Stabilisation Find from €250m to €440m at a meeting on March 25.


Failing to announce a deal the market has priced in could cause a big sell-off of bonds, traders said.

The ECB bond purchases have been controversial. The programme's fiercest critic has been German central bank chief Axel Weber.

He called for the purchases to be phased out last year. Mr Weber was tipped to takeover as ECB president this year before a surprise resignation last week.

Meanwhile, the upper echelons of the ECB are set to become 'men only' with the appointment of Belgian central banker Peter Praet to the executive board of the institution later this year.

Last night, Mr Praet was backed by eurozone ministers to succeed Austria's Gertrude Tumpel-Gugerell on the six-member board.

Ms Tumpel-Gugerell is the only woman on the board.

The ECB governing council consists of the members of the executive board and the heads of the 17 national central banks.

Irish Independent

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