BRUSSELS, Oct 3 (Reuters) - The European Central Bank’s programs of loans and debt purchases to ease the flow of credit will be sizeable, although giving a precise figure is difficult, European Central Bank Executive Board member Peter Praet said on Friday.
The ECB on Thursday laid out plans to buy packages of debt known as asset-backed securities as well as covered bonds, which are secured on solid assets, such as property.
That comes on top of ultra-low interest rates and up to 400 million euros ($501 million) of cheap four-year loans, known as
a Targeted Long-Term Refinancing Operation, or TLTROs. A second tranche of TLTROs in December is expected to attract better
demand than the first in September.
“The ECB Governing Council has clearly communicated that its credit-easing policy will have a sizeable impact on its balance sheet,” Praet said at a conference at ULB university in Brussels.
“Sizeable volumes to address credit impairment are important, as indicated by the universe of purchasable assets,” he said.
The scheme will start in mid-October for covered bonds. Purchases of asset-backed securities will follow before the end of the year.
ECB President Mario Draghi said on Thursday up to 1 trillion euros ($1.25 trillion) of the type of debt the ECB was interested in was available, although ECB purchases may not be that high.
“Precise figures are difficult to give because you have also to take into account the impact of your own policy on the functioning of markets,” Praet said. “The primary metric of success is the impact on inflation and inflation expectations.”
The series of unconventional measures are intended to boost the euro zone economy and keep inflation from staying too low
for too long.
Euro zone inflation slipped to 0.3 percent in September, close to a five-year low and further below the ECB’s target of just under 2 percent over the medium term. The persistently low rate underscores the difficulty of hitting that target in a stagnating economy.
One factor in the ECB’s favor has been the decline of the euro, which has slipped from a year’s peak of almost $1.40 in early May to around $1.25 over the subsequent five months.
Praet said on Friday that the impact of the weaker single currency would typically be felt within a year.
“The pass-through of exchange rates to HICP (harmonized index of consumer prices) is subject to a lot of uncertainties, but our experience is that it is rather fast, significant over a horizon of 12 to 18 months,” he said.
However, he added that assumed everything was equal.
“Remember the movements in the exchange rate have to be considered in the context of lower oil prices in dollar terms which have as of today moved by a comparable percentage over the last year.”
Reporting By Philip Blenkinsop; Editing by Larry King