ECB says no limit on new bond buys; benchmark rate unchanged

The European Central Bank will not set a limit on how much sovereign debt it can buy under its new bond-buying programme and will not expect better treatment than other creditors as it has in the past, ECB president Mario Draghi said.

"No ex ante quantitative limits are set on the size of outright monetary transactions," Draghi told a news conference on Thursday after the ECB Governing Council's monthly policymaking meeting in Frankfurt.

He said the ECB would waive its senior creditor status on bonds it purchased—meaning it would be treated equally with private creditors in case of default.

"The euro system intends to clarify in the legal act concerning outright monetary transactions that it accepts the same, ie. pari passu, treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the euro system."

Draghi said the OMT programme, which aims to lower struggling euro zone countries' borrowing costs, will focus on sovereign bonds of between one and three years' maturity.

Contraction concerns
The euro zone economy will probably contract more than previously expected this year, the ECB said, raising its outlook for inflation for 2012-2013.

The ECB said it expected a very gradual economic recovery and revised down its forecasts for gross domestic product (GDP) for this year to a fall of between 0.6 per cent and 0.2 per cent.

Draghi said the forecasts also showed a range of between -0.4 per cent to growth of 1.4 per cent.

The bank's previous forecasts three months ago had been between -0.5 to 0.3 per cent for 2012 and 0.0 percent to 2.0 per cent for 2013.

"We expect the euro area economy to recover only very gradually," Draghi said.

The September macroeconomic projections, however, also raised forecasts for inflation this year to 2.4-2.6 per cent from a previous forecast of 2.3-2.5 per cent. Prices are seen rising 1.3-2.5 per cent in 2013, compared with 1.0-2.2 per cent range in the June forecasts.

Draghi said the 17-nation bloc's economy was subject to downside risks stemming especially from the euro zone debt crisis and the tensions that has caused in a number of countries.

Earlier, the ECB kept its main interest rate at a record low level of 0.75 per cent.

It also left the interest rate on its deposit facility at 0.0 per cent—a low it went to for the first time in July to encourage banks to lend overnight to other banks, where they receive a higher rate, currently about 0.1 per cent.

The ECB held its marginal lending facility—or emergency borrowing rate—at 1.50 per cent.

Copyright: Thomson Reuters 2012