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ECB bought €98 mn CGBs through QE

24/09/2015 09:05
The ECB purchased €98 mn of Cyprus government bonds (CGB) so far through its quantitative easing program, leaving another €1,2 bln to be bought until next September, when the program is set to expire.

This amount represents just 7,6% of the currently eligible amount for Cyprus.

The ECB's QE program is intended to provide monetary stimulus to the European economies in an effort to reverse the trend of a prolonged lackluster economic growth aiming at achieving an inflation rate of close to 2%.

The QE started in March 2015 and is scheduled to last at least until September 2016. It targets total monthly purchases of around €60 bn for a total exceeding €1 tn.

Some constraints have been put in place including a maximum of 33% of purchases per eligible bond issue while the issuer must enjoy an investment grade rating or if under a financial assistance program, it has to secure a positive program review by the troika.

Since Cyprus belongs to the latter case, it became eligible in July when international creditors gave a positive assessment to its economic adjustment program.

According to the Energy and Strategy division of the Bank of Cyprus, based on the set constraints, Cyprus is eligible for purchases of up to €2,2 bn throughout the QE program.

For the time being only up to about €1,3 bn can be bought as the eligible issues as shown in the table amount to €3,9 bn, so there is an excess capacity of around €0,9 bn for future debt issues.

With the exception of the KOXA amounts shown, which represent the total domestic issues, the rest refer to international issues.

Since July, when Cyprus became eligible, €98 mn have been purchased of an average duration of 5,32 years.

During the first six months the QE has been in effect, a total of €292,3 bn has been purchased in sovereign debt of the 18 eurozone members with a weighted average duration of 8,03 years.

The government intends to proceed to a new international issue in December in an effort to capitalise on the currently prevailing favourable market conditions and it is expected that this issue will expand the total amount eligible under QE.

Due to the QE program bond yields throughout the eurozone area remain at relatively low rates which in turn put downward pressure on interest rates.

During the last six months interest rates in Cyprus have declined but the magnitude of the impact of the QE is not clear as during this period the central bank of Cyprus has forced a reduction in deposit rates.

It is expected that with the ongoing QE program interest rates will decline further which will ultimately lead to meaningful economic growth in the eurozone area.