ECB will continue to buy government bonds

The European Central Bank will continue to buy government bonds until markets have sufficiently stabilised, ECB executive board member Jose Manuel Gonzalez-Paramo told a German newspaper.

"So far the programme is going very well," he said in an interview published in Financial Times Deutschland on Thursday.

The ECB started buying sovereign bonds last month in a controversial decision aimed at supporting bond markets rattled by concerns over the ability of some government to rein in debt and budget deficits.

Gonzalez-Paramo told the newspaper that liquidity had returned to markets at levels above those seen in early May.

"But the situation is not yet entirely normal," he said.

Nonetheless, while investors remain cautious, he said it was "not correct, at least not entirely correct" to assume that the ECB is currently the only buyer of government bonds.

Gonzalez-Paramo said it was very frustrating that rating agencies were still acting in a pro-cyclical way, but was critical of the idea that the ECB could act as a rating agency.

"It is not the job of a central bank to offer ratings or publish its internal evaluations," he said.

The Greek crisis, which investors fear could spread to other weak euro zone states, has highlighted problems in the system under which the ECB accepts bonds as security for loans based on the judgment of major ratings agencies such as Standard & Poor's, Moody's and Fitch.

"We will do everything to be less dependent on rating agencies," Gonzalez-Paramo said.

Greece, Spain and Portugal have all seen their credit ratings cut in recent months as worries intensified about their heavy public debt.

In the latest move, Moody's cut Greece's rating to junk status on Monday, highlighting persistent doubts over the country's ability to exit a severe debt crisis.