Bloomberg News

ECB’s Nowotny Says Bond Program on Hold, No Need to Activate It

February 28, 2012

Feb. 28 (Bloomberg) -- European Central Bank Governing Council member Ewald Nowotny said the ECB has shelved its government bond purchase program for the time being.

“This program is more or less on hold,” Nowotny said late yesterday in London. He said there is a “clear policy line” of keeping it “in reserve” while “there is not an intention of using it.”

The Frankfurt-based ECB said yesterday it hasn’t bought any government bonds for two straight weeks, the first pause since August. The purchases have dwindled since the ECB funneled a record 489 billion euros ($655 billion) of three-year loans into the banking system in December, fueling a bond-market rally and reducing the need to intervene with its Securities Markets Program.

“It was never intended to be a permanent program,” and while “it was a success,” Nowotny said he does “not see a need to activate it.”

The ECB resumed the program in August, ending a four-month hiatus after the sovereign debt crisis escalated and drove up yields in Italy and Spain.

The ECB will lend banks another 470 billion euros in a second offering of three-year funds this week, according to the median of 28 estimates in a Bloomberg News survey. The loans are allotted at 11:15 a.m. tomorrow. The interest rate is determined by the ECB’s benchmark, which is currently at a record low of 1 percent.

Nowotny also said he wants to “warn against the idea” that very long-term loans will become “a regular feature” of ECB policy.

“If number one was a success and number two was a success, that doesn’t mean there has to be number three,” Nowotny said, adding that whenever the ECB introduces a new measure, “we discuss how to end it, the exit strategy.” He said “there are strategies” on how to unwind the longer-term loans, without elaborating.

--Editors: Kevin Costelloe, Brendan Murray

To contact the reporters on this story: Gabi Thesing in London at; Oliver Joy in London at

To contact the editor responsible for this story: Craig Stirling at

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