(Corrects Monday story to remove reference in penultimate
paragraph to ECB not buying bonds issued after start of
programme, adds verbatim quote)
* Coene says rate cuts, LTROs option for ECB
* Doubts QE chances, warns Spain on borrowing costs
* Hints at ECB debate on taking Greek losses
By Marc Jones
LONDON, Sept 17 The ECB could cut its main
interest rate, put its deposit rate into negative territory and
offer banks a new round of ultra-cheap funding, policymaker Luc
Coene said on Monday, adding Spain's borrowing costs would soar
again without a support programme.
ECB Governing Council member Coene said it was "very
unlikely" that the ECB would ever engage in outright
quantitative easing but that the central bank had a number of
other options to ease monetary policy if required.
"You could further lower interest rates, you can also try to
extend the LTROs to some extent, you can also do some LTRO with
private credit claims as collateral," he said during a seminar
organised by the European Economics and Financial Centre.
A handout of cheap long-term funding linked to credit claims
-- typically loans to firms or households-- would be a move to
try and tempt banks into new lending.
Asked on charging banks to deposit cash at the ECB
overnight, he added: "That is certainly one of the options, that
is not at all excluded."
Coene is the head of the Belgian central bank, a position
which brings with it a seat on the ECB's 23-member Governing
The ECB's vow to buy potentially unlimited amounts of
Italian and Spanish bonds if the countries admit themselves into
fiscal rehab programmes has seen a dramatic reduction in the
market turmoil which was threatening the euro's future.
Coene said the ECB would not lose the appetite for the
purchases as it did for its Securities Markets Programme because
they were now directly tied to countries submitting themselves
to fiscal rehabilitation programmes.
He said the ECB would make its own decisions on whether a
country was sticking to its promises.
"We could turn the purchases on and off instantly
overnight," he said, adding the Governing Council would not be
rely on politicians' views.
WARNING TO SPAIN
Spain's borrowing costs were also likely to jump again if it
tried to avoid taking a politically unpopular aid programme.
"If Spain does not submit to a conditionality we will not
buy its bonds... I don't think it will take long for Spanish
spreads to rise (if Spain does not submit to programme)," Coene
The process may already be under way. Spain continues to
show little sign of requesting aid and its 10-year bond yields
crept back to 6 percent on Monday, highlighting
the pressure it is likely to come under if it holds off
Coene also stressed that the ECB would take losses on any
bonds bought under its new programme, known as Outright Monetary
Transactions (OMT). He also refused to rule out the ECB
swallowing loses on its Greek bonds.
"President (Mario) Draghi has made it clear that for the OMT
we will not apply the seniority rule that was applied for the
SMP, that is also the reason we mark-to-market the bonds we buy
on our balance sheet," he said, referring to the ECB president.
"The past is still an open question and we will see how this
one plays out," he said referring to the bank's Greek bonds.
Marking the bonds "to market" rather than committing to hold
them until they mature also leaves to ECB free to sell them if
it so wished, Coene noted.
He also said parts of the new programme's design meant there
were built-in limits to how much it could spend.
Only bonds with three or fewer years until they mature will
be bought under the plan, and Coene said that governments would
not be able to manipulate their issuance to take advantage of
the new scheme.
"We will only buy the debt with the remaining maturity of
three years and part of the conditionality will be that the
maturity structure of the debt may not change so that they
(governments) cannot put all the new debt in the short end of
the market," he said. "And after the three years this debt
matures, maybe we will buy new debt but there is an implicit
limit on the amount of bonds we will buy through that
(Reporting by Marc Jones; Editing by Ron Askew and Roger