ECB comes to governments' rescue with record weekly buys

FILE PHOTO: European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

FRANKFURT (Reuters) - The European Central Bank made its biggest asset purchases ever last week as it stepped up its efforts to keep credit cheap for euro zone governments hit by the coronavirus pandemic.

With euro zone leaders at odds over how to finance a common response to a global health crisis that has brought the economy to a virtual standstill, the ECB is so far the only European institution that has taken major steps to provide stimulus.

The euro zone’s central bank bought some 39 billion euros worth of assets last week - by far the largest amount since starting its money-printing programme in 2015.

It was making use of a 120 billion euro “envelope” earmarked earlier this month for the response to the virus, which was later complemented with a further 750 billion euros under a new Pandemic Emergency Purchase Programme (PEPP).

Under its five-year old Public Sector Purchase Programme (PSPP), the ECB increased its holdings of public-sector bonds by nearly 20 billion euros - the biggest ever weekly increase.

The ECB does not provide a breakdown for the PEPP, which also includes commercial paper and totalled 15.6 billion euros in just two days since its launch on March 26. It also bought 1.7 billion euros worth of covered bonds and 1.3 billion euros of corporate debt.

Euro zone governments are expected to run large deficits this year to support an economy facing a sharp contraction, with debt-laden Spain and Italy so far the worst hit in the bloc.

Reporting by Francesco Canepa; Editing by Balazs Koranyi and Hugh Lawson