Bundesbank Said to Support Ending ECB Absorption of Bond

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, the official said yesterday, asking not to be identified because the meetings aren’t public. The ECB conducts weekly operations to soak up 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.

The central bank said on Jan. 28 that it would absorb 151 billion euros ($204 billion) from banks in the 18-nation euro area, 26.3 billion euros short of its target. It was below its target by 25.4 billion euros the prior week, and also failed to meet its sterilization goal for three weeks in December.

Overnight interbank borrowing costs surged above the ECB’s benchmark interest rate last month, rising as high as 0.36 percent on Jan. 20. The overnight rate dropped to 0.16 percent by Jan. 30. 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 yesterday.

ECB policy makers meet to set monetary policy on Feb. 6. They kept the main rate at a record low of 0.25 percent in January after a surprise cut in November.

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