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European Central Bank has bought half of Irish bond sales in 2020

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Davy chief economist Conall MacCoille.

Davy chief economist Conall MacCoille.

Davy chief economist Conall MacCoille.

The European Central Bank (ECB) has purchased more than 50pc of the €21.5bn borrowed by the State so far this year. The ECB's total holdings of Irish government bonds will be around €48bn by the end of this year, or roughly a third of the total outstanding, according to research by Davy chief economist Conall MacCoille.

The central bank in Frankfurt is expected to buy another €3bn to €4bn over the remainder of the year, he said.

The National Treasury Management Agency (NTMA) will borrow €1bn to €1.5bn today, with a last deal of the year to follow in November that between could take total borrowing this year to €24bn.

The ECB is not allowed lend directly to the Irish Government by buying new bonds as they are issued, but it can buy the IOUs on the secondary bond market which it is flooding with cash in a bid to lift growth across the Euro area by stimulating lending.

The ECB purchased €3bn of Irish Government debt in August and September via its Public Sector Purchase Programme (PSPP) and Pandemic Emergency Purchase Programme (PEPP) schemes.

It has bought €11bn of Irish government bonds since the start of this year.

By flooding the bond market with cash the ECB creates scarcity that means bondholders are forced to accept lower yields if they want to hold the debt. This has slashed borrowing costs for countries including Ireland. While the scale of purchases is enormous, the ECB's rules mean it should not hold more than around a third of Irish bonds.

The ECB has bought €44bn of Irish bonds so far, while the Central Bank here holds another €7.5bn of government floating rate notes, a type of bond, linked to the old Anglo Irish Bank promissory note. The Central Bank is now by far the country's biggest creditor while its purchases are a key factor in driving down borrowing costs for the State and making the deficit this year, expected to be more than €20bn, affordable.

This morning the NTMA will further increase the national debt by issuing bonds due in 2027, 2030 and 2035.

Economists at the Central Bank of Ireland said this week that the pandemic will push the national debt to €248bn by the end of 2022,

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The national debt stood at just €37.6bn at the end of 2007, before the bank rescues and the EU/IMF bailout. The debt was €204bn at the start of this year.

Borrowing is justified, and thanks to low interest rates affordable the Central Bank said, but it warned that it will have to be cut in the long term.


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