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Draghi says European Central Bank primed to buy bonds — when ready

BRDO PRI KRANJU, Slovenia--European Central Bank (ECB) President Mario Draghi said on Thursday the ECB was primed to buy troubled eurozone bonds when conditions were right and that this had already calmed financial market tension.

Speaking at his regular monthly news conference, Draghi also said “significant progress” had been made in Spain to bring its finances into order, although more was needed.

He said the eurozone's economy was expected to remain weak but that near-term price increases had led to the ECB keeping rates on hold.

A month after Draghi unveiled a bond-purchase program for struggling euro states that was hailed by many as a savior for the single currency bloc, investors are still waiting for Spain to bite the bullet and request a formal rescue.

Before it does, the ECB cannot act, and markets are likely to remain jittery.

But Draghi was upbeat about Spain's attempts to end its crisis.

“Significant progress has been made,” he said. “Significant challenges remain as well.”

He refused to comment, however, on whether Spanish bond yields were at appropriate levels. An auction earlier on Thursday saw Spanish borrowing costs fall in most cases

Draghi was clear however that the existence of a bond-buying programme, called OMT, had already had an impact.

“OMTs have helped to alleviate ... tensions (in financial markets) over the past few weeks, thereby reducing concerns about the materialization of destructive scenarios,” Draghi said.

“The mechanism (to buy) is in place.”

Rates Unchanged

The central bank announced that its governing council had decided to keep its main refinancing rate steady at 0.75 percent, a record low.

Analysts expect the bank to cut rates later this year, but only after the new bond program has started. Draghi said however that the ECB had not discussed a cut or potential cuts.

Draghi said there had been some inflationary pressures lately.

“Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation rates are expected to remain above 2 percent throughout 2012, but then to fall below that level again in the course of next year,” he said. “Current levels of inflation should thus remain transitory and not give rise to second round effects. We will continue to monitor closely further developments in costs, wages and prices.”

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President of the European Central Bank Mario Draghi looks at his notes during a press conference after the ECB Governing Council Meeting in Brdo, 60 km northeast of Ljubjana, Thursday, Oct. 4. Draghi lauded what he called “remarkable” progress made by Spain as the debt-racked country reforms its labor market and banking sector.

(AFP)

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