Eurozone money market traders say there is a growing chance that the European Central Bank will buy sovereign bonds in the coming year, a Reuters poll showed on Monday, as existing policy measures are failing to bring inflation back up to target. Euro zone money market traders gave a median 40 percent chance of ECB sovereign debt purchases, up from 25 percent in a similar Reuters poll on September 8.
That is the same probability as in a snap poll of economists conducted after the ECB's September 4 meeting, when it cut another 10 basis points from the deposit rate - effectively increasing the amount it charges banks to park money overnight. The ECB is also providing a new set of loans to banks (TLTROs) which are designed to boost lending. But the take-up at the first tranche was below market expectations and the second leg in December could under whelm.
"All measures the ECB has taken so far they have not really worked in its favour...this (sovereign bond purchases) is the big weapon they have and they have to pull it out," said a trader. But the political pressures faced by the ECB will probably keep it from making sovereign bond purchases, another trader at a large dealer said. The central bank of the largest economy in the euro zone, Germany, has consistently been opposed to very loose monetary policy in the currency bloc.
Banks are next week expected to repay 4.0 billion euros of the long term loans (LTROs) they took from the ECB in late 2011 and early 2012. Last week 5.9 billion euros was paid back. The ECB will allot 85.0 billion euros at the regular weekly refinancing tender, up a bit from the 84.2 billion euros maturing this week.
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