ECB sovereign-debt buying possible next year, says Constancio
Vitor Constancio, the vice president of the European Central Bank (ECB), said that the bank will consider early next year purchasing sovereign debt proportional to the size of each Eurozone member’s economy.
“We expect that the adopted measures will lead, within the time of the programme, the balance sheet to go back to the size it had in early 2012,” Constancio said in a speech in London on Wednesday.
“If not, we will have to consider buying other assets, including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available.
He said it would be a pure monetary policy decision, "buying accordingly to our capital key, within our mandate and our legal competence”.
Constancio said that by the first quarter of 2015 the ECB will be able to assess how effectively current measures have proved in reviving the bloc’s economy.
“To explore new channels of transmission of monetary policy that have worked in other countries like the UK and the US, we are aiming at increasing the size of the monetary base and our balance sheet by directly injecting money also into non-bank economic agents,” Constancio said.
The ECB vice president added the impact of buying sovereign debt would go “well beyond the direct effect on the yields of the purchased securities”.
Analysts believe that Constancio’s words signify that the ECB is ready to adopt more stimulus measure and that full-blown quantitative easing is now a much more realistic possibility than it was a couple of months ago.
“It's increasingly obvious from the communication from the two most important officials at the ECB that sovereign quantitative easing is on the way, it's merely a question of how soon,” said Ken Watret, European market economics analyst at BNP Paribas.
“Our call remains for an announcement next week of a broadening of the range of assets the ECB needs to buy, in tandem with downward revisions to already low staff inflation projections, with sovereign purchases to begin in the first quarter of next year.”