European Central Bank moves swiftly to sterilise government bond buying

THE European Central Bank yesterday laid out plans to sterilise its controversial government bond purchases, in a rapidly orchestrated move designed to quash fears the buy-ups will lead to a surge in inflation.

The ECB also revealed €16.5bn (£14.1bn) worth of bond purchases had been settled by last Friday, giving markets their first true glimpse of the ECB’s contribution to a $1 trillion attempt to resolve the Eurozone’s debt crisis. The ECB said it will start offsetting the purchases from today by taking one-week deposits from banks. It will offer an interest rate of up to one per cent on any funds banks deposit, well above the 0.25 per cent it offers on daily deposits. The move is a bid to bolster its inflation fighting credentials having abandoned its long-held resistance to government debt buying. “The ECB is trying to show that the purchases are not going to be inflationary,” said Barclays Capital economist Julian Callow. “It’s designed to assuage criticism, it’s a strong measure.” The total bond purchases in the first week could be higher than the €16.5bn, given purchases typically take 2-3 days to settle.