FRANKFURT, Germany, Sept. 6 (Xinhua) -- The European Central Bank (ECB) on Thursday announced its new bond-buying program will be unlimited and sterilized.
The governing council decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area, the ECB president Mario Draghi read out in a statement.
In another press release, Draghi said no ex-ante quantitative limits are set on the size of OMTs and the transactions will be focused on the shorter part of the yield curve, and in particular on sovereign bonds with a maturity of between one and three years.
Just like the Securities Market Program (SMP), under which the ECB started to buy euro area government bonds in May 2010, the ECB decided that the liquidity created through OMTs will be fully sterilized with a clear purpose of assuaging inflation concerns.
The SMP, worth 209 billion euros (264 billion U.S. dollars), has been terminated.
Strict and effective conditions will be attached to the OMTs and European Financial Stability or European Stability Mechanism programs, Draghi said, adding the ECB would seek the involvement of the International Monetary Fund to design country-specific conditions.
The ECB clarified bonds under the OMTs would be treated the same as private or other creditors. The ECB will publish the aggregate OMT holdings and their market values on a weekly basis.
Draghi said economic growth in the euro area is expected to remain weak, citing ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment.
"OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro," he said.
The governing council would decide on the start, continuation and suspension of OMTs after a thorough assessment, Draghi added.
Following remarks that he would do whatever it took to preserve the euro, Draghi said at a press conference in August that the ECB would buy sovereign bonds of euro area governments if they officially ask for bailouts from the ESM.
Draghi's remarks and the new bond-buying plan have pushed market expectations to a high level. There is hope that the new bond-buying plan may bring down the borrowing costs of euro area countries such as Italy and Spain, which are grappling with high bond yields.