Bloomberg News

ECB Settles No Bond Purchases for First Time Since August

February 20, 2012

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Feb. 20 (Bloomberg) -- The European Central Bank’s government bond buying ground to a halt last week.

The Frankfurt-based ECB said no transactions were settled in the week through Feb. 17 -- for the first time since August - - after 59 million euros ($78 million) were spent the previous week. The ECB will take seven-day term deposits tomorrow to absorb the 219.5 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.

The ECB resumed bond purchases in August, ending a four- month hiatus, after the sovereign debt crisis escalated and drove up bond yields in Italy and Spain. Yields have fallen across the 17-nation euro area since the ECB flooded the banking system with a record 489 billion euros in three-year loans in December.

The ECB says its bond purchases are aimed solely at ensuring transmission of its interest rates on financial markets. The program has nevertheless split the bank’s policy makers, some of whom say it blurs the line between monetary and fiscal policy. Former ECB Chief Economist Juergen Stark resigned at the end of 2011 over the bond purchases.

--With assistance from Kristian Siedenburg in Budapest. Editors: Matthew Brockett, Eddie Buckle

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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