Bundesbank Said to Support Ending ECB Absorption of Bond Buys

Germany’s Bundesbank would support ending the European Central Bank’s absorption of liquidity from bond purchases made during the financial crisis, according to a euro-area central bank official familiar with the discussions.

The Bundesbank has deliberated on the measure in the ECB’s monetary-policy and market-operations committees, said the official who asked not to be identified because the meetings aren’t public. The ECB conducts weekly operations to soak up about 180 billion euros ($243 billion) of liquidity created through the purchase of government bonds since 2010 in the now-terminated Securities Markets Program.

The ECB has failed for the past two weeks to sterilize the purchases in a sign that banks may be reluctant to park liquidity at the Frankfurt-based central bank as market rates rise. Officials have said they could take action if they consider money markets are too volatile or if the medium-term outlook for inflation worsens.

Overnight interbank borrowing costs surged above the ECB’s benchmark interest rate of 0.25 percent this month, rising as high as 0.36 percent on Jan. 20. The overnight rate dropped to 0.16 percent yesterday. Inflation in the currency bloc unexpectedly slowed to 0.7 percent in January, compared with the ECB’s target of just under 2 percent, data from the European Union’s statistics office in Luxembourg showed today. ECB policy makers meet to set monetary policy on Feb. 6.

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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