“To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate,” Draghi said in a speech at the Global Investment Conference in London today. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he said, adding: “believe me, it will be enough.”
Financial markets surged on speculation the ECB will act to lower Spanish borrowing costs after yields on the nation’s bonds rose to levels that prompted bailouts for Greece, Portugal and Ireland. The ECB reluctantly started buying Spanish and Italian debt in August last year as part of its bond purchase program. The buying had little lasting effect and the ECB suspended the program in March.
“His comments certainly suggest that ECB purchases of Spanish and Italian bonds are back on the table for discussion,” said Chris Scicluna, head of economic research at Daiwa Capital Markets Europe. “But -- just like last summer -- we would expect any new ECB bond purchases to be temporary and limited until other policies are put in place.”
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