European Central Bank To Lift Limits On Bond Purchases
European Central Bank (ECB) to lift limits for bond purchases in 750 billion euro emergency incentive program
The European Central Bank (ECB) has announced that it will remove the bond purchase limits envisaged in the $ 750 billion emergency incentive program. This decision allows the bank to use unlimited ammo to combat the economic effects of the coronavirus.
The ECB announced in a legal document published on Wednesday that the restrictions limiting the country’s bond purchases to one-third of its debts should not be “used” in the new emergency program.
After this announcement, the bonds of the Euro Area member countries rally. Short-term Italian bonds were the group that showed the strongest rise, and accordingly, the interest rate of 2-year bonds dropped by eight basis points to 0.37 percent, the lowest in a week. Germany’s 10-year bonds fell five basis points to minus 0.31 percent.
The emergency program, which is planned to continue by the end of 2020 at the earliest, will also include the shorter-term ones than the bonds purchased under the current monetary expansion operations.
This sharp step is in line with the announcement of AMB President Christe Lagarde as “unlimited” in AMB’s commitment to the euro.
Bank Pictet & Cie in Geneva. global strategist Frederik Ducrozet said the details in the description of the AMB are a great surprise and game-changing for AMB.
“In summary, this decision lifts all restrictions on asset purchases and further increases the reliability of AMB’s comments,” said Ducrozet, and said, “Asset purchases can now last until 2021 when needed.”