August 7, 2018 / 7:13 AM / 2 months ago

Germany's claims in euro zone payment system drop in July: Bundesbank

FRANKFURT, Aug 7 (Reuters) - The Bundesbank’s claims towards other euro zone central banks fell sharply last month, data showed on Tuesday, confirming policymakers’ comments that flows in the currency bloc’s payment system were not indicating increased stress.

The German central bank’s Target 2 balance fell to 913.2 billion euros at the end of July from 976.3 billion in June, suggesting that technical factors at least in part accounted for the sharp increase in the previous month.

Rising German claims during the bloc’s debt crisis indicated that confidence in states on its periphery was waning as investors moved their cash north to safe-haven markets from the likes of Italy, Spain and Portugal.

The European Central Bank has long insisted that this time was different as rising German claims were primarily a factor of its 2.6 trillion euro ($3.0 trillion) asset purchase programme, the hallmark monetary policy tool aimed at reviving growth and inflation.

As foreign investors tend to hold accounts in Germany, their sales of various euro area bonds will show up as a Bundesbank claim against other central banks, a technicality that does not suggest broader capital flight.

Still, concerns have been rising recently as the Bank of Italy’s liabilities in Target 2, which settles cross-border payments in the euro zone, have increased sharply, just as a populist government took power, setting off market volatility.

The ECB will end its bond purchases by the close of the year and has argued that Target 2 imbalances will slowly correct thereafter.

$1 = 0.8638 euros Reporting by Balazs Koranyi; editing by John Stonestreet

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