ECB says no limit on new bond buys; cuts growth forecast

The European Central Bank will not set a limit on how much sovereign debt it can buy under its new bond-buying programme and will not expect better treatment than other creditors as it has in the past, ECB President Mario Draghi said.

“No ex ante quantitative limits are set on the size of outright monetary transactions,” Draghi told a news conference on Thursday after the ECB Governing Council’s monthly policymaking meeting in Frankfurt.

He said the ECB would waive its senior creditor status on bonds it purchased-meaning it would be treated equally with private creditors in case of default.

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“The euro system intends to clarify in the legal act concerning outright monetary transactions(OMT) that it accepts the same, ie. pari passu, treatment as private or other creditors with respect to bonds issued by euro area countries and purchased by the euro system.”

Draghi said the OMT programme, which aims to lower struggling eurozone countries’ borrowing costs, will focus on sovereign bonds of between one and three years’ maturity.

The eurozone economy will probably contract more than previously expected this year, according to new European Central Bank staff forecasts which also raised the bank’s outlook for inflation for 2012/2013.

The ECB also said it expected a very gradual economic recovery and revised down its forecasts for gross domestic product (GDP) for this year to a fall of between 0.6 percent and 0.2 percent.

Draghi said the forecasts also showed a range of between -0.4 percent to growth of 1.4 percent.

The bank’s previous forecasts three months ago had been between -0.5 to 0.3 percent for 2012 and 0.0 percent to 2.0 percent for 2013.

“We expect the euro area economy to recover only very gradually,” Draghi said.

The September macroeconomic projections, however, also raised forecasts for inflation this year to between 2.4 and 2.6 percent from a previous forecast of 2.3-2.5 percent. Prices are seen rising 1.3 to 2.5 percent in 2013, compared with 1.0-2.2 range in the June forecasts.

Draghi said the 17-nation bloc’s economy was subject to downside risks stemming especially from the euro zone debt crisis and the tensions that has caused in a number of countries.

Earlier, the ECB kept its main interest rate at a record low level of 0.75 percent.

Reuters