ECB: €1 trillion securities can be bought

European Central Bank vice-president Vitor Constancio said €1 trillion of asset-backed securities (ABS) and covered bonds are eligible for purchase by the institution.

“The overall purchasable amount of asset-backed securities and covered bonds is sufficient to ensure that asset purchases can be carried out on a large scale,” Constancio said in Frankfurt yesterday. “We are aware that the amounts that we will be able to buy will be lower than the theoretical amount.”

Asset purchases are the latest addition to the ECB’s medley of unconventional tools that also includes targeted long-term loans and a negative deposit rate. The central bank, struggling with low inflation and an economy that stagnated in the second quarter, unveiled details of the plan last week and said it plans to start buying this month.

From a total stock of euro-area covered bonds of €1.2tn, about €600bn are eligible for purchase by the ECB, Constancio said. At the same time, around €400bn of ABS qualify out of a stock of about €690bn, he said at an ECB workshop on unconventional monetary policy.

While long-term loans and asset purchases aren’t novel in ECB monetary policy, measures taken since June mark a “new phase” for the central bank, Constancio said.

“We are ready to actively steer the size of our balance sheet toward significantly larger levels, so as to further ease the stance of monetary policy in a situation in which policy rates have reached their lower bound,” he said, citing future bond yields. “Initial financial-market reactions suggest that the nature of our new measures has been appreciated.”

Economic indicators haven’t shown much reaction yet. A gauge of manufacturing and services activity fell more than initially estimated to the lowest in almost a year, growth in new business is fading, and employment is at risk of declining, Markit Economics said last week. Inflation hasn’t been near the level the ECB defines as price stability since early last year.

The euro-area recovery is still “weak and fragile,” Constancio said. “Central banks cannot run the risk of observing inflation expectations starting to become unanchored, given the challenges in controlling them ex-post.”

— Bloomberg