European Central Bank President Mario Draghi said the bank is ready to start buying government bonds as soon as the necessary conditions are fulfilled by any countries needing assistance.
The ECB is ready to undertake Outright Monetary Transactions “once all the prerequisites are in place,” Draghi said today at a press conference in Ljubljana, Slovenia, after policy makers left the benchmark rate at a historic low of 0.75 percent. The plan has “helped to alleviate tensions over the past few weeks” and “it is now essential that governments continue to implement the necessary steps to reduce both fiscal and structural imbalances,” Draghi said.
A month after Draghi unveiled the unprecedented bond-purchase plan to lower yields on government debt, Spain, the country most likely to take up the offer, is still mulling whether it wants to accept the conditions attached. At the same time, the euro-area economy probably entered a recession in the third quarter as the sovereign debt crisis damped spending and investment.
“Economic growth in the euro area is expected to remain weak, with ongoing tensions in some euro-area financial markets and high uncertainty still weighing on confidence and sentiment,” Draghi said. Inflation should drop below the ECB’s 2 percent limit next year, he said, adding policy makers didn’t discuss cutting rates today.
Bank of England
The euro extended gains as Draghi spoke, rising to $1.2992 for a 0.7 percent advance on the day. Spanish and Italian bonds were little changed, with the yield on Spain’s 10-year debt trading at 5.773 percent at 3:22 p.m. in Ljubljana. Italian 10- year bonds yielded 5.058 percent.
Separately, the Bank of England held its bond-purchase target at 375 billion pounds ($603 billion) and kept its key rate at 0.5 percent.
Under Draghi’s OMT plan, a country must make a formal request to Europe’s bailout fund to buy its debt on the primary market before the ECB considers buying bonds on the secondary market. Spanish Finance Minister Luis de Guindos has said officials are still considering whether they need European Union aid.
Italian Prime Minister Mario Monti cautioned last week that aid shouldn’t hinge on more conditions than leaders already signed up to and the International Monetary Fund shouldn’t need to police it.