Eurozone Monetary Policy


Draghi unveils bond buying scheme

At the latest European Central Bank (ECB) policy meeting on 6 September, ECB President Mario Draghi presented the details of the ECB new bond buying scheme, known as the Outright Monetary Transactions (OMT) programme, a plan that Draghi had already previously outlined at the August policy meeting. The scheme will consist of a series of purchases of sovereign bonds with a maturity of between one and three years on the secondary market. Bond purchases will take place only after governments have adhered to "strict and effective conditionality" attached to an EFSF/ESM programme, be it a fully-fledged bailout or a precautionary programme, and provided that it includes the possibility of EFSF/ESM primary market purchases. According to the ECB, "[the] involvement of the IMF shall also be sought for the design of the country-specific conditionality and the monitoring of such a programme", meaning that a country accessing the OMT will need to agree to a Memorandum of Understanding (MoU) with the EU-ECB-IMF Troika. OMT bond purchases will be fully sterilized and the ECB will not take a senior status. Monetary authorities did not set a specific limit for the amount, although Draghi stated that the size of the OMT will be "adequate" to meet the ECB's objectives. At the same policy meeting, monetary authorities left the refinancing rate unchanged at a record low of 0.75%. The decision, which was widely expected by the market, marks the second consecutive month in which the ECB leaves the refinancing rate unchanged.

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Euro Area Monetary Policy September 2012

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