ECB to offer banks longer funds

LONDON: The European Central Bank said on Thursday it would offer a round of six-month financing to banks in response to the euro zone debt crisis, while traders said it had resumed buying government bonds of weak states from the secondary markt.

Following are analysts and traders' comments after the ECB's news conference.

NICK KOUNIS, HEAD OF MACRO RESEARCH AT ABN-AMRO

"We doubt that the ECB's asset purchase programme can have a sustained impact on the tensions in the Spanish and Italian bond markets.

"This reflects that the central bank's commitment to sterilize the programme limits its size, making it too small to have any significant impact on these major markets. As such, the ECB's intervention should be seen as a short-term fix at best."

HOLGER SCHMIEDING, BERENBERG BANK

"Trichet announced the apparent resumption of bond purchases through the backdoor. It came not in an ECB statement, but in somewhat vague responses to questions. That raises doubts as to how serious the ECB is about it.

"Trichet refused to say whether the ECB would also buy Spanish and Italian bonds, and not just Irish and Portuguese bonds. If it turns out that the ECB does not buy Spanish and Italian bonds, the signal might do very little to address the key problem, namely that of contagion to the weightier economies of Italy and Spain.

"Trichet suggested that the decision to buy bonds again was not unanimous but by "overwhelming majority". This indicates that the ECB would find it difficult to go much beyond today's apparent decision.

"HOWARD ARCHER, CHIEF EUROPEAN & UK ECONOMIST, IHS GLOBAL INSIGHT

"So far the ECB has only purchased Portuguese and Irish bonds. It remains to be seen whether the ECB extends its operation to buy Spanish and Italian bonds, and if it does how effective this will be in combating the recently surging yields that have become a major concern and threat to Eurozone stability.

"The fact that Mr. Trichet indicated that the ECB's decision to resume bond buying was not unanimous but by an 'overwhelming majority' has led to speculation that the ECB may not be fully committed to the programme and its involvement and impact may be limited."

CYRIL REGNAT, BOND STRATEGIST, NATIXIS, PARIS

"That's the best thing that could happen, even if it's not really a surprise. The ECB has a very efficient tool, a big strike force. It will calm things down, until the EFSF takes over.

"The situation in Italy and Spain wasn't critical yet. Italy could have changed its issuance strategy, with more short-term bills. But the spread move was impressive, and it really is the difficulties on the interbank market that were threatening the stability of the economic system. That's the reason why Trichet decided to take action.

"I think the rise in yields we had recently, hitting 6.2 percent (in Italy's 10-year BTPs), meant that the market was pricing in a liquidity crisis. We should get back to 5.4 percent at the very least, that's the level we had after the Greek plan announcement. 5 percent would be a good target if you take Italy's fundamentals into account."

JULIAN CALLOW, CHIEF EUROPEAN ECONOMIST AT BARCLAYS CAPITAL

"The main news from the press conference was that Mr Trichet gave several clear hints that the Securities Market Programme, which had been dormant since March, had been re-activated. Indeed, Bloomberg and Reuters have each cited various trading sources as saying that the Eurosystem had bought Irish and Portuguese government debt during the press conference.

"That said, he observed that the decision on whether to purchase bonds had not been approved with unanimity. If the wire reports are correct, and the ECB has bought the debt only in these markets, then it might be interpreted as more of a warning shot rather than a broad-based onslaught. In questioning, Mr Trichet refused to elaborate on how the ECB decided which countries' debt to purchase".

CARSTEN BRZESKI, ECONOMIST AT ING FINANCIAL MARKETS

"The perhaps most exciting piece of information from today's press conference was on the ECB's bond purchasing programme. Trichet had the expected comment that the programme had never been ended and that it had always been transparent to shortly later hint at possible market action.

"Indeed, in an attempt to show that the programme was still alive, the ECB apparently intervened in peripheral bond markets during the press conference. However, the question remains whether the ECB's bond purchasing is sufficient to substantially lower bond yields in peripheral countries.

"In this regard, the track record of the ECB's bond purchasing programme so far is anything but promising. As long as it remains a half-hearted mission under the protective shell of monetary policy transmission, it will probably not be enough."

MARIE DIRON, SENIOR ECONOMIC ADVISER TO ERNST & YOUNG

"The ECB seems largely undeterred by recent developments and keeps pointing to further rate increases in interest rates. Unless developments turn much more negative, the ECB has signalled that it will likely raise interest rates in October. We think that this tightening of monetary policy is unhelpful, at best. It will add to the burden of peripheral countries and dampen fragile growth in the core Eurozone countries.

"The ad-hoc provision of extra liquidity announced today is helpful in the short term but it is not enough to stem the current crisis.

"The ECB continues to qualify risks to the growth outlook as balanced. This strikes us as a very optimistic assessment."

Copyright Reuters, 2011