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ECB holds steady on rates, but asset increase pledge gone

The European Central Bank on Thursday​ kept key interest rates for the region unchanged, but it removed a pledge to increase the size of its asset purchase program if the outlook or financial conditions were to deteriorate.

ECB President Mario Draghi said in an introductory statement at a news conference announcing the monetary policy decisions that interest rates are expected to remain at current levels "for an extended period of time, and well past the horizon of our net asset purchases" of €30 billion ($37 billion) per month until the end of September. These purchases may continue beyond that date if necessary, "and in any case until the governing council sees a sustained adjustment in the path of inflation consistent with its inflation aim."

The interest rate on the main refinancing operations of the eurosystem, which provides the bulk of liquidity to the banking system, was kept 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%.

In previous introductory statements as recent as January and December, Mr. Draghi had said: "If the outlook becomes less favorable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the governing council stands ready to increase the asset purchase program in terms of size and/or duration."

Money managers said the ECB's moves were expected.

"The ECB has dropped its long-standing bias toward stronger policy easing," said Neil Mellor, senior currency strategist at Bank of New York Mellon (BK), in a response to the announcement. "But we wonder if taking this step was considered the best way to convey progress on the path toward normalization without sending the (euro) sky high."

Charles St-Arnaud, senior investment strategist at Lombard Odier Investment Managers, said in a separate comment that the removal of the pledge to increase asset purchases "is long overdue, as the downside risk to growth has reduced considerably in recent months. Moreover, this alteration is another step toward policy normalization, by implying a clear neutral policy bias."

Mr. St-Arnaud said this opens the door for the ECB to hint at its June meeting that it will end its asset purchase program in September. However, he said his firm expects a rate hike to be "far away and remains dependent on the path of inflation."