MNI POLICY: APP Re-start, New Issuer Limits Possible - Draghi

By Luke Heighton

     SINTRA (MNI) - The European Central Bank recently discussed restarting its

sovereign bond purchase programme and would consider increasing limits on its

purchases of individual countries' debt, Mario Draghi signalled today.

     The asset purchase programme "still has considerable headroom," he told an

ECB forum in the Portuguese city of Sintra. "Moreover, the Treaty requires that

our actions are both necessary and proportionate to fulfil our mandate and

achieve our objective, which implies that the limits we establish on our tools

are specific to the contingencies we face."

     "Further cuts in policy interest rates and mitigating measures to contain

any side effects remain part of our tools."

     The ECB's Governing Council last voted to raise the issuer limit of 25%

established in March 2015 to 33% six months later, following a review. A 50%

issuer and issue share limit applies to supranational bonds under the ECB's

public sector purchase programme.

     "Looking forward," Draghi said, "the risk outlook remains tilted to the

downside, and indicators for the coming quarters point to lingering softness.

     "In the absence of improvement, such that the sustained return of inflation

to our aim is threatened, additional stimulus will be required.

     "In the coming weeks, the Governing Council will deliberate how our

instruments can be adapted commensurate to the severity of the risk to price

stability."

     The ECB stands ready to "enhance our forward guidance by adjusting its bias

and its conditionality to account for variations in the adjustment path of

inflation," Draghi added. "This applies to all instruments of our monetary

policy stance. All these options were raised and discussed at our last meeting."

     The ECB president also called on fiscal authorities to play a great role in

boosting growth, and said that "the burden of macroeconomic adjustment has

fallen disproportionately on monetary policy. We have even seen instances where

fiscal policy has been pro-cyclical and countered the monetary stimulus."

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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