ECB to extend stimulus programme at reduced rate

It will maintain its monthly purchase volume at €80 billion ($ 86.2 billion) until March 2017 as planned, but will reduce it to €60 billion as of April. It kept all its interest rates unchanged.

The euro strengthened against the US dollar in response to the announcement, a sign that the decision to reduce the amount of monthly purchases was a surprise.

“This is less than what was expected and will catch markets off guard,” said Patrick O’Donnell, an investment manager at Aberdeen Asset Management.

With the eurozone entering a year of key elections, and anti-establishment parties on the rise, investors had expected the ECB to take a cautious approach to its bond buying programme and maintain the monthly purchase amount.

However, the ECB did give itself some room to reverse its taper should next year throw up some unpleasant surprises.

“If, meanwhile, the outlook becomes less favourable or if financial conditions become inconsistent with further progress toward a sustained adjustment of the path of inflation, the Governing Council intends to increase the program in terms of size and/or duration,” it said in a statement.

The statement said ECB President Mario Draghi will announce changes to the structure of the bond buying programme to make the nine-month extension viable during his news conference.

The ECB left its main policy rate, the rate it charges for regular loans to commercial banks, at 0% and left its rate on overnight deposits at minus 0.4%.

Write to Todd Buell at todd.buell@wsj.com

This article was first published by The Wall Street Journal

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