The European Central Bank’s latest attempt to sterilise its government bond purchases has landed with a resounding thud. Results from the ECB’s Tuesday one-week fixed-term deposit (FTD) auction, in which it planned to drain the €55bn of extra liquidity created by its €55bn of bond-buying, are in.This is just stunning. The only way the ECB is going to pull this drain off is at much higher rates, since the drain will have to suck money from other sectors. The FAIL here means there is no loose money around to be sopped up. It is going to have to be ripped out of the heart of the EU economy. Not good. The alternative? Leave the money in the system and start a huge wave of inflation.
And they are not pretty.
The ECB failed to auction the €55bn in fixed term deposits it had planned to, and what it did auction (€31.86bn) was at a much-higher rate (0.54 per cent) than what it offered at the start of its Securities Markets Programme (SMP). The market seems to be holding tight to liquidity.