The European Central Bank bought the lowest amount of bonds in two months last week as market activity slowed during the holiday season.
The Frankfurt-based ECB said it completed €164m of purchases after settling €1.12bn the previous week.
That's the lowest since the ECB resumed the programme after a three-week pause in October. It will take seven-day term deposits tomorrow to neutralise €73.5bn of liquidity created by bond purchases since the programme started on May 10, it said yesterday.
The ECB on December 2 extended emergency liquidity measures for banks after Ireland's aid package failed to convince investors that governments can push down budget deficits and prevent a breakup of the 17-member euro area. Estonia joined the single-currency region on January 1.
The slowdown in ECB bond buying "may reflect thin trading volumes because of the Christmas holidays," said Martin van Vliet, senior economist at ING Group in Amsterdam. "Tensions will pop up again and eventually force the ECB once again to ramp up purchases."
Last week, the ECB failed to fully neutralise the extra liquidity created by its bond purchases for a second time since the programme's inception in May as banks prepared for the turn of the year and their need for liquidity increased. The ECB each week drains the amount of extra liquidity it has created to ensure the purchases don't swell money supply and create inflation risks. (Bloomberg)