LISBON, May 9 (Reuters) - The Bank of Portugal will keep buying the country’s sovereign debt, since the country is below its capital key limit for such purchases within the diminishing European Central bank bond-buying programme, Governor Carlos Costa said on Wednesday.
“What’s going to happen with the already announced reinvestment policy is, as we are below our capital key, we can manage supranational purchases versus sovereign, including by increasing the share of sovereign” debt purchases, Costa told a parliament committee, without specifying how much it could buy.
The ECB’s capital key weighting is based on the size of each country’s economy. It dictates limits on the amount of each country’s debt and individual bonds the euro system central banks can hold.
Due to a shortage of eligible Portuguese debt, the Bank of Portugal has been complementing its monthly purchases with supranational debt, issued by the European Stability Fund and its predecessors such as the European Financial Stability Facility.
“The Bank of Portugal will remain in the market and will optimize (its activities) in full accordance with the euro system rules,” Costa said, explaining that Portugal’s loan repayments to the International Monetary Fund in 2016-17 and some new bond issues have created more eligible national debt.
Cristina Casalinho, the head of state debt agency IGCP, said last week Portugal was still benefiting from monthly bond purchases by the European Central Bank of 400 million to 500 million euros as before it started gradually reducing overall purchases across the euro zone from 80 billion euros.
She said the country was likely to feel some implications when the total amount is reduced to 20 billion euros from 30 billion and later when the purchases peter out by the end of the year, but the impact should be smaller than in other economies.
Costa said, however, that the pace of buying did reduce over last year, when the bank had to buy more supranational debt. He would not say how much the ECB was buying now per month. (Reporting By Sergio Goncalves, writing by Andrei Khalip, editing by Larry King)