* ECB aims to wait until after German election
* No option off table if economy worsens
* To buy as few bonds as possible below depo rate
By Francesco Canepa and Balazs Koranyi
FRANKFURT, Dec 22 The European Central Bank
plans to keep debate about further stimulus closed until the
second half of 2017, after the election in Germany where the
bank's loose monetary policies are politically charged.
Senior officials told Reuters that after years of crisis
fighting - including philosophical clashes with Berlin - the ECB
is conscious that its 2.3 trillion euro ($2.41 trillion)
bond-buying programme is losing its impact and any major new
moves could impact politics, leaving it exposed to criticism.
As well as Germany - where Chancellor Angela Merkel is
seeking a new term - there are elections next year in the
Netherlands, France and possibly Italy.
Of the four, the ECB is most likely to be an issue in
Germany. Its policies are viewed by many Germans as depressing
returns for savers and inflating property prices.
Having just extended the asset-purchase programme, the aim
is to hold off any more moves until after the September vote,
the officials said.
No option is off the table, the sources said, stressing that
the ECB would intervene if growth slowed significantly or
political risk, either from elections or policy shifts from the
new U.S. administration, put pressure on markets.
"(But) if everything goes well, we won't seriously debate
the next policy move until September," one of officials said.
The ECB declined to comment.
With growth holding up and inflation accelerating, officials
argue that the ECB has done what it needed to get the bloc
through the election year and the rest was up to governments as
the bank's power is mostly spent.
If euro zone inflation, currently at 0.6 percent, started
drifting away from its objective of almost 2 percent, however,
the ECB would not hesitate to do more.
If it needed to act, the first port of call would be to bump
monthly bond purchases, due to be reduced to 60 billion euros
from April, back to 80 billion euros, its current level, the
"If the environment changes again, the amount can go up,"
one source said.
The terms of the programme could also be changed, along the
lines discussed before the December meeting.
For instance, the ECB could ease a rule forcing it buy
government bonds in proportion to each country's share of the
central bank's capital, potentially making room for more
purchases in highly indebted Italy.
In extreme scenarios, the ECB would even consider buying
bank bonds, which it already accepts as collateral for central
bank cash, or, at a pinch, stocks.
Faced with the risk of running out of debt to buy in
Germany, the ECB relaxed the terms of the scheme earlier this
month to include, albeit only "to the extent necessary", paper
that yields even less than its deposit rate, set at a negative
This would allow the ECB to continue its quantitative easing
programme until the second quarter of 2018, according to Pictet
estimates. But it comes with little benefit for the economy.
This is why the ECB will try to buy as few loss-making bonds
as possible when it restarts its printing presses after the
Christmas break, the sources said.
A negative yield means that the central bank will suffer a
loss on the bond if it holds it until it matures.
Meanwhile, buying more debt for which demand is already
strong, further depressing record-low borrowing costs for the
euro zone's richest countries, does little to boost the broader
For this reason the ECB wants to keep those purchases to a
minimum, hoping to take advantage from the recent surge in
"If the trend in the bond market continues, it may push
yields up and we may not need to use it in the end," one of the
($1 = 0.9555 euros)
(Editing by Jeremy Gaunt)