Draghi: ECB Bond Program Has Already Eased Tension
European Central Bank (ECB) President Mario Draghi said the bank's recently announced bond buying program had eased market tensions, even though it has not yet commenced.
The ECB announced its plan last month to buy the sovereign bonds of stricken euro zone members, if they applied for aid from their European partners and agreed to strict conditions for economic reforms. The purchases will be called Outright Monetary Transactions or OMT.
Speaking at his monthly news conference on Thursday at 12:30 p.m. London time, after the ECB had announced it would hold interest rates, Draghi said:
"OMTs have helped to alleviate... tensions in financial markets over the past few weeks, thereby reducing concerns about the materialization of destructive scenarios."
Draghi also reiterated that the euro zone's existence was "irreversible".
The euro rose against the dollar on Draghi's comments.
Draghi added that Spain had made “significant progress” but that challenges remained for the country. He said the ECB had mechanisms in place should Spain request aid, but that he would also seek involvement from the International Monetary Fund (IMF).
Draghi emphasized it was up to Spain to decide whether to solicit aid. Spain is widely seen as the primary candidate for OMT, but has so far resisted applying.
Draghi refused to comment, however, on whether Spanish bond yields were at appropriate levels, and said the ECB had no specific targets to which it wanted to bring yields down.
An auction earlier on Thursday saw Spanish borrowing costs fall in most cases.
Draghi added that member states that have already received a bailout, such as Portugal, will not be eligible for OMT until they have regained full access to the bond markets.
"The OMT is not a replacement for lack of primary market access," Draghi said.
Portugal returned to the bond markets on Wednesday for the first time since it sought its 78 billion euro ($101 billion) bailout last year, swapping short for longer-dated debt to buy time to fix its finances.
Rates Unchanged
Draghi said the euro zone's economy was expected to remain weak, but near-term price increases had led to the ECB keeping its main interest rate on hold at 0.75 percent.
The rate on its deposit facility remains at 0.0 percent, and the rate on the marginal lending facility at 1.5 percent.
Prices in the euro zone were 2.7 percent higher in September than in the same month a year earlier, the 22nd month that inflation topped the ECB's target of just below 2 percent.
"Owing to high energy prices and increases in indirect taxes in some euro area countries, inflation ratesare expected to remain above 2 percent throughout 2012, but then to fall below that level again in the course of next year," Draghi 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."
Analysts expect the bank to cut rates later this year, but only after the start of the new bond program. Draghi said however that the ECB had not discussed a cut or potential cuts.
