(Updates with economist’s comment in fourth paragraph. For more on Europe’s debt crisis, see EXT4.)
Jan. 16 (Bloomberg) -- The European Central Bank increased its government bond purchases last week.
The Frankfurt-based ECB said it settled 3.77 billion euros ($4.77 billion) of bond purchases in the week through Jan. 13, up from 1.1 billion euros the previous week. The ECB will take seven-day term deposits tomorrow to absorb the 217 billion euros of liquidity created since its Securities Markets Program started in May 2010, a practice it employs to ensure the purchases don’t fuel inflation.
Italian and Spanish borrowing costs fell last week and ECB President Mario Draghi said there are “tentative” signs of stabilization in the economy even as the sovereign debt crisis poses downside risks. Standard & Poor’s on Jan. 13 downgraded nine euro-area nations including France and Austria, saying efforts to combat the crisis are falling short.
So far, the SMP has been “reasonably effective at managing interest rates despite its modest amounts,” said Christian Schulz, an economist at Berenberg Bank in London. “More likely than not, another wave of the crisis will force the ECB to act more decisively.”
The ECB has refused to ramp up its bond program to help indebted nations, saying the purchases are aimed solely at ensuring monetary-policy transmission and it’s up to governments to solve the crisis. European leaders will this week resume efforts to agree new fiscal rules to win back investor confidence in the monetary union.
--Editors: Matthew Brockett, Andrew Atkinson
To contact the reporter on this story: Jeff Black in Frankfurt at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com