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Bundesbank want end to ECB money soak

Friday, January 31 16:18:16

Germany's Bundesbank would favour an end to ECB operations that soak up money spent to buy distressed government bonds, which would help ease strains in euro zone money markets, the news agency Dow Jones said today, quoting a source.

It was not clear whether there was enough support on the ECB's governing council to halt the operations, the source told Dow Jones. The Bundesbank declined to comment.

The ECB bought more than 200 billion euros worth of government bonds from countries hit by the euro zone debt crisis. It still holds 177.5 billion euros worth of them.

In weekly operations, the ECB takes deposits from banks to offset its spending on the bonds. But in recent weeks, the ECB has failed to completely offset the purchases. This week, banks offered 151.2 billion euros, some 26 billion euros short of target.

The ECB started the so-called sterilisation operations to ensure the bond purchases did not inject so much money into the region's economy that it triggered inflation. But with lower excess liquidity, siphoning off the money has recently pushed up overnight interest rates in money markets - a de facto rate increase that runs counter to the ECB's own monetary policy.