ECB to remove €60bn collateral from markets per month
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ECB to remove €60bn collateral from markets per month 27 January 2015Frankfurt Reporter: Stephen Durham
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The Governing Council of the European Central Bank (ECB) is to expand its asset purchase programme.
Aimed at fulfilling the ECB’s price stability mandate, this programme will see the ECB add the purchase of sovereign bonds to its existing private sector asset purchase programmes in order to address the risks of a too prolonged period of low inflation.
The council has stated that it took this decision in a situation in which “most indicators of actual and expected inflation in the euro area had drifted towards their historical lows”.
The programme will encompass the asset-backed securities purchase programme (ABSPP) and the covered bond purchase programme (CBPP3), which were both launched in 2014. Combined monthly purchases will amount to €60 billion.
They are intended to be carried out until at least September 2016 and until the council is satisfied that the path of inflation is consistent with its aim of achieving inflation rates below, but close to, 2 percent over the medium term.
The ECB will buy bonds issued by euro area central governments, agencies and European institutions in the secondary market against central bank money, which the institutions that sold the securities can use to buy other assets and extend credit to the real economy. In both cases, this contributes to an easing of financial conditions.
The ECB stated: “The programme signals the council’s resolve to meet its objective of price stability in an unprecedented economic and financial environment. The instruments deployed are appropriate in the current circumstances and in full compliance with the EU Treaties.”
As regards the additional asset purchases, the council retains control over all the design features of the programme and the ECB will coordinate the purchases.
With regard to the sharing of hypothetical losses, the council has decided that purchases of securities of European institutions will be subject to loss sharing.
The ECB will hold 8 percent of the additional asset purchases. This implies that 20 percent of the additional asset purchases will be subject to a regime of risk sharing.
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