ECB should activate bond-buy plan if conditions met -Knot

AMSTERDAM, March 14 Thu Mar 14, 2013 8:00am EDT

Related Topics

AMSTERDAM, March 14 (Reuters) - The European Central Bank should be ready to make good on its promise to buy government bonds if certain circumstances are fulfilled, ECB Governing Council member Klaas Knot said on Thursday.

"I don't want to speculate on any specific case. But it is clear that if certain circumstances are fulfilled, then the ECB should be ready for activation," Knot told a press conference.

The ECB has calmed the euro zone crisis with its pledge to buy government bonds in potentially unlimited amounts via the Outright Monetary Transactions programme.

But the programme has not yet been deployed, and the central bank will only activate it if a member country seeks help from the bloc's rescue fund and agrees to austerity policy conditions.

Fellow governing council member Panicos Demetriades told Reuters earlier on Thursday that Ireland's issuance of its first long-term bond since being bailed out was an important step towards qualifying it for help from the programme.

Knot said the impact on bond markets of the OMT programme had allowed a marked improvement in the transmission of the ECB's monetary policy.

"The announcement of the OMT has made sure that the degree of heterogeneity among government bond yields has been significantly reduced," he said.

Knot added there was currently "no risk" of deflation in the euro zone.

"Currently the inflation outlook is in line with our mandate that means it is below 2 percent," he said, adding that there was sufficient price pressure still in the production chain, such as the indirect effect of higher value added tax.

FILED UNDER: