ECB Ready to Buy Bonds as Economy Weakens

European Central Bank President Mario Draghi said the economic outlook is worsening and the bank stands ready to activate its bond-purchase program if governments fulfil the necessary conditions.

“We are ready to undertake” Outright Monetary Transactions, “which will help to avoid extreme scenarios,” Draghi said today at a press conference in Frankfurt after policy makers left the benchmark interest rate at a historic low of 0.75 percent. “The risks surrounding the economic outlook remain on the downside” and underlying inflation pressures “should remain moderate,” he said.

Draghi yesterday fueled speculation that the ECB might put rate reductions back on the agenda, saying the debt crisis is starting to hurt Germany — the pillar of economic strength in the euro area — and that inflation risks are “very low.” Still, Spain is resisting asking for a bailout that would open the door to ECB bond purchases, stalling the central bank’s efforts to repair its monetary policy transmission mechanism.

“It’s entirely up to Spain and the Spanish government to take the decision,” Draghi said. At the same time, “since the OMT announcement there have been a series of improvements” on financial markets, including “a return of flows from the rest of the world,” he said.

Bloomberg

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell
Dean Popplewell

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