ECB buys 16.5 bln eur bonds, takes deposits to offset

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The European Central Bank bought 16.5 billion euros worth of bonds in the first week of its government debt buying program and will offset the purchases by taking one-week deposits from banks, it said on Monday.The announcement was the first detailed glimpse into the euro zone's government bond purchase programme which began last week after the ECB abandoned a long-held resistance to it as part of a $1 trillion attempt to resolve the region's debt crisis.The central bank has not said how long it would continue or what its maximum size could be.The ECB said on Reuters information page it would call for bids on Tuesday offering banks the chance to deposit funds and earn interest of up to 1.0 percent."The ECB will conduct specific operations in order to reabsorb the liquidity injected through the Securities Markets Programme," the ECB said.The ECB will also allow banks to use term deposits as collateral."Fixed term deposits held with the eurosystem are eligible as collateral for the eurosystem's credit operations," the ECB said.The second such operation will be conducted next week, the ECB said. Analysts expect them to become a permanent feature with higher amounts as bond buys accumulate."It will probably become a kind of rolling procedure whereby the volumes will increase every week," said Unicredit's Kornelius Purps."They are purchasing bonds with a maturity of up to three or five years and funding it via one-week operations."The interest rate banks will be able to earn is likely much higher than they would get at the ECB's overnight deposit facility, which offers 0.25 percent interest."It's a relatively high interest rate. It's designed to assuage criticism, it's a strong measure," said Julian Callow, a Barclays Capital economist."The ECB is trying to show that the purchases are not going to be inflationary."(Reporting by Krista Hughes and Sakari Suoninen)
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