ECB to hold government bonds to maturity -Stark

* ECB can mop up liquidity outside govt bond market

* ECB will resist any pressure to allow higher inflation

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BERLIN, May 12 (BestGrowthStock) – The European Central Bank will
hold euro zone government bonds which it is currently buying
until they mature, ECB Executive Board member Juergen Stark said
on Wednesday.

Stark repeated ECB promises to sterilise money put into the
economy during its programme of bond purchases, the ECB’s part
of a $1 trillion attempt to resolve the euro zone debt crisis,
which began on Monday.

But the ECB could mop up extra liquidity from areas other
than the government bond market as it offsets any potential
inflationary effects of the programme.

“The government bonds which we’re buying today will be held
until the end of their maturity,” he told Deutschlandfunk radio.
“In the course of time we will neutralise the liquidity effects.
We will mop up this extra liquidity again. We’ve done this in
the past.”

The ECB had other mechanisms for neutralising the effects of
the bond purchases. “We hold the government bonds but mop up
liquidity in other areas,” he said. “This is about the overall
liquidity effect and not just the particular effect in the area
of government debt.”


Stark also insisted the ECB would resist any political
pressure to allow higher euro zone inflation as a way of
tackling governments’ debt problems.

Stark denied there had been any political influence in the
ECB’s decision to reverse its previous opposition to government
bond purchases, and said the central bank would have rejected
this if there had been any.

“On the ECB board, we are a very convinced band who will
resist political pressure,” he said. “However, increased
political pressure could come from other areas of the world so
that globally, central banks could have difficulties.”

Stark said only independent central banks could ensure there
would be no return to the situation of the 1970s when inflation
ran out of control.

“Compared with the 70s … we have independent central banks
everywhere and this was born from the experience that central
banks should not be politicised,” said Stark. “If we have higher
inflation rates, it is very difficult to get them back under

The euro zone would have higher inflation this year but
price stability would still be achieved in the bloc, he said. He
also saw no inflation risk for the foreseeable future.

Stock Market Basics
(Reporting by Sarah Marsh, editing by David Stamp/Mike Peacock)

ECB to hold government bonds to maturity -Stark