ECB fails fully to offset government bond purchases
FRANKFURT Dec 30 (Reuters) - The European Central Bank on Monday failed for the third time in a row to sterilise the full value of the euro zone government bonds it holds from its terminated bond programme.
As the year draws to an end, banks chose to hold onto funds rather than hand them back to the ECB, careful to ensure that they have enough liquidity.
The ECB drew back 104.842 billion euros ($144.45 billion)from banks versus a target of 178.5 billion euros, equivalent to the size of its first and now terminated government bond purchase programme, which remained unchanged in the week to Friday, Dec 27.
The so-called Securities Markets Programme (SMP) was replaced by a new and yet-to-be used plan dubbed Outright Monetary Transactions (OMT) in September last year. The ECB holds the bonds it bought under the SMP to maturity.
The ECB has made efforts to avoid any liquidity squeeze towards the end of the year and earlier this month it suspended repayments of the ultra-cheap loan until Jan. 15.
Excess liquidity, the amount of money in the market beyond what banks need for day-to-day operations, has dropped from over 600 billion euros at the start of this year to around 200 billion euros on Monday.
The ECB takes an amount equivalent to its holdings of euro zone government bonds as weekly deposits from banks to offset the buying and neutralise any threat it will fuel inflation. It has failed to sterilise bond purchases over the previous two weeks, as the year drew to a close.
Top euro zone banks are also gearing up for next year's ECB's asset quality review (AQR), in which it will examine their books before beginning its new supervisory role. ($1 = 0.7258 euros) (Reporting by Eva Taylor Editing by Jeremy Gaunt)
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