By Andrew Hay
MADRID, May 25 (Reuters) - The European Central Bank is likely to begin purchases of covered bonds within weeks after its early June meeting and hopes to exit non-conventional policies as soon as possible, Executive Board member Jose Manuel Gonzalez-Paramo said on Monday.
He repeated that the ECB would buy about 60 billion euros ($83.97 billion) worth of covered bonds, but said details like what type of debt, maturities and ratings would be unveiled after the June 4 meeting.
'It's most likely to be weeks,' Paramo said when asked how soon after that the ECB would start buying covered bonds. 'As soon as it is technically possible, the institutions have to prepare themselves to bid. It's purely a question of technical implementation, technical preparation.
But Paramo said the goal of the ECB was to exit all non-conventional measures such as asset purchases as soon as possible.
'The idea is to return to a normal philosophy as soon as possible, that's to say exit non-conventional methods,' he told reporters ahead of a speech to a Madrid economic forum.
He saw no great challenge neutralising the impact of covered bond buys on money supply to avoid upward pressure on inflation, but gave no details of what methods the ECB would use.
'At present, the sterilisation that maintains liquidity that circulates in the system, is to a great extent endogenous, it's banks that request liquidity in the amounts that they see fit against collateral we accept,' Paramo said. 'We continue working within our operating procedure, this means we do not have a huge problem imagining how to withdraw the excess of liquidity at the moment when we consider there is an upside risk of prices rising.'
The ECB lowered its rates by 25 basis points to an all-time low of 1 percent earlier this month, a level which Paramo said was appropriate for the current environment.
'We decided to leave rates at 1 percent ... but what we did not decide last time was if interest rates at 1 percent were the lowest imaginable under any scenario.'
The ECB's additional decisions to lend banks unlimited funds for up to 12 months and buy about 60 billion euros worth of covered bonds, together with government stimulus plans, should spur a gradual, moderate economic recovery in 2010, Paramo said.
He urged euro zone governments to develop exit strategies from stimulus spending, warning of future risks of high public debt and budget deficits levels.
Paramo said there were growing signs euro zone economic decline was easing but said ups and downs in indicators, such as the IFO German business sentiment survey published on Wednesday, should not be overplayed.
'The IFO figure confirms that we continue to be in an environment of quite notable uncertainty. In the last two months we've seen many surprises in a positive sense, the IFO figure today has not been quite so positive, but our central scenario has not changed as a result of this latest figure.'
The comments were similar to ones made earlier on Monday by ECB Governing Council member Axel Weber.
'What you see in some indicators is an inflexion point but we are still moving at very low levels,' Paramo said. 'The central scenario is for significant negative growth this year and the beginning of a gradual recovery starting next year.'
(Editing by Ben Harding and Leslie Adler) ($1=.7145 Euro) Keywords: ECB/PARAMO (andrew.hay@thomsonreuters.com, +34 9157 3667, RM: andrew.hay.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MADRID, May 25 (Reuters) - The European Central Bank is likely to begin purchases of covered bonds within weeks after its early June meeting and hopes to exit non-conventional policies as soon as possible, Executive Board member Jose Manuel Gonzalez-Paramo said on Monday.
He repeated that the ECB would buy about 60 billion euros ($83.97 billion) worth of covered bonds, but said details like what type of debt, maturities and ratings would be unveiled after the June 4 meeting.
'It's most likely to be weeks,' Paramo said when asked how soon after that the ECB would start buying covered bonds. 'As soon as it is technically possible, the institutions have to prepare themselves to bid. It's purely a question of technical implementation, technical preparation.
But Paramo said the goal of the ECB was to exit all non-conventional measures such as asset purchases as soon as possible.
'The idea is to return to a normal philosophy as soon as possible, that's to say exit non-conventional methods,' he told reporters ahead of a speech to a Madrid economic forum.
He saw no great challenge neutralising the impact of covered bond buys on money supply to avoid upward pressure on inflation, but gave no details of what methods the ECB would use.
'At present, the sterilisation that maintains liquidity that circulates in the system, is to a great extent endogenous, it's banks that request liquidity in the amounts that they see fit against collateral we accept,' Paramo said. 'We continue working within our operating procedure, this means we do not have a huge problem imagining how to withdraw the excess of liquidity at the moment when we consider there is an upside risk of prices rising.'
The ECB lowered its rates by 25 basis points to an all-time low of 1 percent earlier this month, a level which Paramo said was appropriate for the current environment.
'We decided to leave rates at 1 percent ... but what we did not decide last time was if interest rates at 1 percent were the lowest imaginable under any scenario.'
The ECB's additional decisions to lend banks unlimited funds for up to 12 months and buy about 60 billion euros worth of covered bonds, together with government stimulus plans, should spur a gradual, moderate economic recovery in 2010, Paramo said.
He urged euro zone governments to develop exit strategies from stimulus spending, warning of future risks of high public debt and budget deficits levels.
Paramo said there were growing signs euro zone economic decline was easing but said ups and downs in indicators, such as the IFO German business sentiment survey published on Wednesday, should not be overplayed.
'The IFO figure confirms that we continue to be in an environment of quite notable uncertainty. In the last two months we've seen many surprises in a positive sense, the IFO figure today has not been quite so positive, but our central scenario has not changed as a result of this latest figure.'
The comments were similar to ones made earlier on Monday by ECB Governing Council member Axel Weber.
'What you see in some indicators is an inflexion point but we are still moving at very low levels,' Paramo said. 'The central scenario is for significant negative growth this year and the beginning of a gradual recovery starting next year.'
(Editing by Ben Harding and Leslie Adler) ($1=.7145 Euro) Keywords: ECB/PARAMO (andrew.hay@thomsonreuters.com, +34 9157 3667, RM: andrew.hay.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.