ECB Steps Up Bond Purchases as Governments Seek to Revamp Crisis-Measures

The European Central Bank stepped up its government bond purchases to the highest in five weeks as European officials are seeking ways to overhaul their crisis- response measures.

The Frankfurt-based ECB said today it completed 2.313 billion euros ($3.07 billion) of purchases last week after settling 113 million euros the previous one. It will take seven- day term deposits tomorrow to neutralize 76.5 billion euros of liquidity created through bond purchases since the program started on May 10, it said today.

The ECB was forced to extend 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. European finance ministers are meeting in Brussels today to discuss a revamp of of the crisis-fighting strategy that may result in an increase in size and mandate of the region’s rescue fund.
If the European Financial Stability Facility “were to buy government bonds, and that improved the functioning of the monetary policy transmission mechanism, that might render some of the ECB’s non-standard measures no longer necessary,” ECB Governing Council member Athanasios Orphanides said in an interview on Jan. 14.

The ECB’s so-called Securities Markets Program aims to smooth the functioning of some bond markets to make them receptive to monetary-policy signals. The ECB only publishes the amount of purchases settled each week, without disclosing details. It says the bond program is “temporary.”

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.

Week      Purchases Settled (bln)  Total (bln)
     1              16.50*              16.5
     2              10.00*              26.5
     3               8.50*              35.0
     4               5.50*              40.5
     5               6.50*              47.0
     6               4.00*              51.0
     7               4.00*              55.0
     8               4.00*              59.0
     9               1.00*              60.0
     10              0.302              60.0
     11              0.176              60.5
     12              0.081              60.5
     13              0.009              60.5
     14              0.010              60.5
     15              0.338              60.5
     16              0.142              61.0
     17              0.173              61.0
     18              0.237              61.0
     19              0.323              61.5
     20              0.134              61.5
     21              1.384              63.5
     22              0.009              63.5
     23                  0              63.5
     24                  0              63.5
     25                  0              63.5
     26              0.711              64.0
     27              1.070              65.0
     28              0.713              66.0
     29              1.348              67.0
     30              1.965              69.0
     31              2.667              72.0
     32              0.603              72.5
     33              1.121              73.5
     34              0.164              73.5
     35              0.113              74.0
     36              2.313              76.5

*calculated by Bloomberg News

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