ECB says it will take 16.5 billion euros in term deposits

17th May 2010, Comments 0 comments

The European Central Bank said Monday it would collect 16.5 billion euros (20.3 billion dollars) from commercial banks in fixed-term deposits to offset its purchases of government bonds last week.

The amount "corresponds to the size of the Securities Market Programme" unveiled a week ago underwhich the ECB decided to purchases sovereign debt to correct what it termed dysfunctions in certain financial markets.

A variable rate tender would be used to attract the funds, with a maximum rate of 1.0 percent, an ECB statement said, and the deposits will be eligible as collateral for the loans of central bank funds.

The purchase of sovereign debt has stirred controversy because some analysts feel it amounts to financing government debt, which the ECB is not allowed to do.

Central bank policymakers have stressed the purchases would be offset or "sterilised" by other actions, like taking in term deposits, that neutralise the increase in the amount of money in circulation.

That is aimed at avoiding inflationary pressures caused by swelling of the money supply.

© 2010 AFP

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