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September 05, 2012 at 05:00 AM
European Central Bank (ECB) President Mario Draghi’s plan to buy bonds will be unlimited but will also be focused on government bonds with short maturity, rather than any other type of assets, and also will be sterilized to avoid any charges that the central bank is printing money.
Bloomberg reported Wednesday that, according to unidentified sources familiar with the proposal, there will be no public cap set on yields and the target will be government bonds with maturity dates of up to three years. The euro rose above $1.26 Wednesday morning on reports of the plan.
The proposal, which may be titled “Monetary Outright Transactions,” is set to be considered later Wednesday, with Draghi announcing on Thursday whether its terms have found consensus. The ECB would not comment on the plan other than to refer to an August 20 statement that said it was misleading to report decisions not yet made.
While the sources expected Jens Weidmann, head of the Bundesbank, to be the sole objector, they also said that it was likely the plan would be approved. One aspect of the plan is the so-called sterilization, which would require the ECB to remove from elsewhere in the system the same amount of money it devotes to bond purchases. That would keep the money supply impact neutral.
