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UPDATE 1-ECB fails to fully sterilise SMP purchases in last round
June 10, 2014 / 11:47 AM / 4 years ago

UPDATE 1-ECB fails to fully sterilise SMP purchases in last round

FRANKFURT, June 10 (Reuters) - The European Central Bank failed to attract sufficient bids at the last round of weekly withdrawals from the market of money it spent on euro zone government bonds at the height of the euro zone’s debt crisis.

The ECB said last week it was suspending the weekly fine-tuning operation, which sterilises the liquidity injected under the Securities Markets Programme between 2010 and 2012, to leave a larger cash buffer in the banking system.

The ECB drew back 108.65 billion euros ($147.93 billion) on Tuesday in seven-day deposits, less than the 162.5 billion euros worth of bonds it still holds, purchased via the now-terminated sovereign bond-buying plan.

The ECB has been taking an amount equal to its holdings of euro zone government bonds as weekly deposits from banks to neutralise any threat that the purchases would fuel inflation.

But euro zone inflation is now at 0.5 percent, far below the ECB’s target of close to 2 percent, fuelling fears the 18-country currency bloc could slip into deflation.

Earlier on Tuesday, banks took almost 35 billion euros less in the ECB’s weekly and monthly refinancing operations, taking 137 billion euros in 7-day funds and almost 10 billion euros in the monthly operations.

A Reuters poll had expected banks to borrow 130 billion euros in the weekly and 20 billion euros in the one-month operations.

The Securities Markets Programme was replaced by a new and yet-to-be used bond-buying plan dubbed Outright Monetary Transactions, or OMT, in September 2012. The ECB holds the bonds it bought under the SMP to maturity.

$1 = 0.7345 Euros Reporting by Eva Taylor; Editing by Catherine Evans

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