ECB bond purchases on target in March

European Central Bank chief Mario Draghi said Monday that the bank was "on track" to reach its declared goal for a controversial programme of bond purchases launched earlier this month.
"On March 9, we started purchasing public-sector securities as part of our expanded asset purchase programme," Draghi told the European Parliament's Committee on Economic and Monetary Affairs in a regular hearing in Brussels, transmitted live online.
"Overall, our asset purchases will amount to 60 billion euros ($65 billion) per month. The pace of purchases so far puts the overall programme on track to reach a total of 60 billion euros in March," Draghi said.
According to data released separately on the ECB's website, the bond purchases totalled 26.3 billion euros as of last Wednesday, March 18.
On January 22, the ECB announced a massive 1.14-trillion-euro bond purchase programme, known as quantitative easing or QE, which will take place over at least 18 months.
The aim is to pump liquidity into the financial system to kick-start lending and push up the rate of inflation, currently below zero.
Some analysts have suggested, however, that the ECB might find it difficult to find sufficient bonds to buy, as many investors will be unwilling or unable to sell top-rated government bonds, particularly those belonging to Germany.
Draghi rejected such suggestions.
"At this point in time we see no signs that there will not be enough bonds for us to purchase. Feedback from market participants so far suggests that implementation has been very smooth and that market liquidity remains ample," he said.
"The sovereign debt market is big enough for the purchase programme to function without difficulty," he said.
- Positive effects -
Critics of the QE programme, including the head of the German central bank or Bundesbank, Jens Weidmann, maintain that it  reduces the incentive of governments to get their economies and finances in order. But Draghi says it is already having a positive effect.
"Our interventions have accelerated a trend that had been evident since some time," he said.
"Lower funding costs for banks have started to influence the cost of borrowing for households and companies. As bank lending rates are being reduced, new investment projects –- previously considered unprofitable -- become attractive," he said.
"In the short-run, this should sustain the demand for credit and investment."
The ECB's regular bank lending survey confirmed that "the easing of lending conditions is progressing hand-in-hand with a resurgent demand for credit to finance business investment. In the longer-term perspective, this will increase potential output," Draghi said.
The ECB has said the QE programme will run at least until end-September 2016.
Nevertheless, the bond purchases should not be seen as a way for governments to dodge their responsibilities, Draghi insisted.
"The positive results of our new purchase programme should not distract other stakeholders from delivering their contribution to put the economy back on track. Fiscal policies should support economic growth, while ensuring debt sustainability," he said.
"Structural reforms should be implemented promptly and with determination. The combination of improved economic structures and sound fiscal policies indeed has the potential to make our monetary policy more effective," Draghi argued.
Source: AFP