The European Central Bank will reduce the value of asset purchases under its monetary policy program in January.
Asset purchases will fall to €30 billion ($35.5 billion) per month in January 2018 through September, or beyond if necessary, from the current monthly pace of €60 billion.
These purchases will continue "until the governing council sees a sustained adjustment in the path of inflation consistent with its inflation aim" of at close to but below 2%.
The central bank's governing council kept the interest rate on the main refinancing operations of the eurosystem, which provides the bulk of liquidity to the banking system, at zero. Overnight credit for banks, known as the marginal lending facility, was kept at 0.25%, while the interest rate on the deposit facility, which banks in the region may use to make overnight deposits, was held at -0.4%.
Mario Draghi, president at the ECB, said in an introductory statement at a news conference announcing the monetary policy decisions that the "recalibration" of the bank's asset purchase program "reflects growing confidence in the gradual convergence of inflation rates toward our inflation aim, on account of the increasingly robust and broad-based economic expansion, an uptick in measures of underlying inflation and the continued effective pass-through of our policy measures to the financing conditions of the real economy."
He added that domestic price pressures remain muted and that the economic outlook and path of inflation remain conditional on continued monetary policy support. "Therefore, an ample degree of monetary stimulus remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. This continued monetary support is provided by the additional net asset purchases, by the sizable stock of acquired assets and the forthcoming reinvestments, and by our forward guidance on interest rates," he said in the statement.
In comments following the announcement, money managers said the ECB delivered in line with market expectations. "While this is half of the current pace, it represents another €270 billion of purchases, or liquidity, injected into European fixed income," said Charlie Diebel, head of rates at Aviva Investors. "The market has rallied in fixed income and the euro has sold off as there was a hawkish bias to expectations going into the announcement. The fact that the ECB will continue to reinvest proceeds for some time after QE ends, adds to the dovish read and in turn should be supportive for risk assets."
A separate comment by Paul Hatfield, global co-chief investment officer and president at Alcentra, said the announcement "was so much in line with what we expected that it was almost disappointing." Bunds may benefit and the euro may weaken slightly, he added, but the firm expects "things to stay tight and remain range bound for the foreseeable future." Mr. Hatfield added no rates rises "seem likely for at least another 12 months."