European Central Bank primed to boost bond buying if needed - Lane

THE European Central Bank is monitoring market developments closely and is fully prepared to expand its emergency bond-buying programme if needed, its Irish chief economist Philip Lane said.

Speaking two weeks before the ECB’s next policy meeting, the former governor of the Central Bank of Ireland stressed the importance of monetary support reaching all 19 members of the euro area as they try to rein in the impact of the coronavirus pandemic.

“We continuously examine each of our measures to assess whether these are still adequately calibrated and appropriately sized to provide the necessary degree of accommodation in this uncertain economic environment,” he said yesterday.

“Accordingly, we are fully prepared to further adjust our instruments if warranted.”

Policy makers have been sending strong signals the ECB will increase the size of its €750bn emergency bondbuying plan, potentially as early as next month, to support the region during its worst post-war economic crisis.

Since the programme’s start in late March, the ECB has focused purchases on countries including Italy to avoid a situation where rising yields cancel out stimulative effects of loose monetary policy for all euro countries.

Mr Lane said the embedded flexibility allows for “fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions”, calling them “a crucial element in fostering its effective market stabilisation function”.

“The goal is to stabilise and improve financial conditions in response to this large shock,” he said in response to a question on the ECB’s long-standing rule that debt purchases should be proportionate to the size of each economy.

“I don’t think it’s particularly productive to zero in on operational details. We’ve said that we have the flexibility as needed to deviate from capital key, and that’s what we’re doing and that’s what we’re going to do.”