The ECB registered a slowdown in the pace of CBPP3 purchases last week, with net buying the smallest yet. Mario Draghi meanwhile insisted that an “extraordinary amount of monetary policy support” is still required, ahead of next week’s governing council meeting.

European Central Bank figures released on Monday show the CBPP3 portfolio increased Eu128m, from Eu219.221bn to Eu219.349bn, in the week to last Friday. Analysts noted the net increase is the smallest reported under the programme to date, excluding weeks in which quarter-end amortisation adjustments cut into the portfolio growth.

Portfolio redemption figures released yesterday (Tuesday) afternoon show that around Eu600m of CBPP3 holdings matured last week, implying gross purchases of around Eu728m last week. This is down from around Eu921m in the previous week.

One CBPP3-eligible deal settled last week, a Eu500m issue for Hamburger Sparkasse, of which central banks and official institutions were allocated 37.1%. Analysts estimated that the Eurosystem took around Eu150m of the deal.

This would imply secondary market purchases averaged around Eu115m per day last week. This is substantially higher than the estimated Eu24m-Eu64m per day in the previous week, and among the higher rates recorded in recent weeks.

Analysts noted that the Eurosystem is on track to purchase around Eu5bn, gross, of covered bonds this month. This is up from around Eu4.028bn in April – which was the first month in which the ECB had lowered its monthly QE target to Eu60bn – but closer to the totals purchased in Eu4.734bn in March and around Eu5.53bn in February.

The next meeting of the ECB governing council will be held on Thursday of next week (8 June) and there has been speculation that some of the more dovish language in its statements could be dropped, with the ECB gradually makes its way towards QE tapering.

ECB president Mario Draghi nonetheless downplayed the chances of a major shift in the ECB’s position when speaking before the Committee on Economic & Monetary Affairs of the European Parliament on Monday. He suggested that that interest rates will have to stay at low levels and stressed that the Eurozone still needs monetary support despite its improving economy.

“Despite a firmer recovery, and looking through the volatile readings in HICP inflation over recent months, underlying inflation pressures have remained subdued,” he said. “Domestic cost pressures, notably from wages, are still insufficient to support a durable and self-sustaining convergence of inflation toward our medium-term objective. For domestic price pressures to strengthen, we still need very accommodative financing conditions, which are themselves dependent on a fairly substantial amount of monetary accommodation.

“Overall, we remain firmly convinced that an extraordinary amount of monetary policy support, including through our forward guidance, is still necessary for the present level of underutilised resources to be re-absorbed and for inflation to return to and durably stabilise around levels close to 2% within a meaningful medium-term horizon.”

Photo credit: European Parliament; Copyright EU 2017