Monday, August 22, 2011

ECB Adds 14.3 B to SMP, Total Buying Now 110.5 B

The European Central Bank (ECB) spent a further 14.3 billion euros on bond purchases last week, down from 22 billion in the previous week, as part of the expanded SMP (Securities Market Program).  The purchases of the past two weeks eclipse the previous record of 16.5 billion euros that the ECB undertook when it began buying Greek government debt in May 2010.  The latest buying brings the total value of purchases under the program to 110.5 billion euros since the program began in May 2010.  According to Reuters, much of the buying last week was concentrated in Italian bonds, while Greek debt makes up the majority of the total purchases in the program to date (which also includes Irish, Spanish and Portuguese bonds).

The ECB last raised its interest rates by 25 basis points at its July meeting; pausing in May and June, after increasing the rate by 25 basis points to 1.25% in April this year.  The ECB paused the rate hikes when it met earlier in August, but announced a resumption of its bond buying program; which initially had been focused on Greece, Portugal, and Ireland.  The initial absence of Spain and Italy from the resumed bond buying program contributed to the deteriorating financial market sentiment that saw significant volatility in asset markets in early August.  The ECB next reviews monetary policy settings on the 8th of September, meanwhile Jean Claude Trichet will be attending the Jackson Hole Economic Policy Symposium this week, and is expected to be one of the keynote speakers, including Ben Bernanke.


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