ECB Ready to Buy More Italian Debt if Referendum Drives up Cost of Borrowing

The European Central Bank is ready to temporarily step up purchases of Italian government bonds if the result of a crucial referendum on Sunday sharply drives up borrowing costs for the euro zone’s largest debtor, central bank sources told Reuters.

Italian government debt and bank shares have sold off ahead of the Dec. 4 referendum on constitutional reforms because of the risk of political turmoil. Opinion polls suggest the ‘No’ camp is heading for victory, which could force out Prime Minister Matteo Renzi in the latest upheaval against the ruling establishment sweeping the developed world.

The ECB could use its 80-billion-euro ($84.8 billion) monthly bond-buying program to counter any immediate, further spike in bond yields after the vote, smoothing market moves and supporting bonds, according to four euro zone central bank sources who asked not to be named.

Reuters

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.