The European Central Bank boosted its coronavirus bond buying program by a larger-than-expected €600 billion Thursday, while issuing a downbeat growth and inflation forecast for the region's blighted economy.
The ECB said its Pandemic Emergency Purchase Program would increase to €1.35 trillion and extended by around six months to June of 2021. Proceeds from the program will also be reinvested until at least the end of 2022, the ECB said, allowing the bank to buy more debt from peripheral Eurozone countries such as Italy and Spain.
The Bank also left its three key policy rates, including the -0.5% charge it applies to cash held overnight within the Eurosystem, unchanged.
"The Governing Council continues to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry," the bank said in a statement.
U.S. equity futures pared declines following the ECB announcement, with contracts tied to the Dow Jones Industrial Average now indicating a 70 point opening bell decline and those linked to the S&P 500 suggesting a 15 point slip for the broader benchmark.
The ECB said 2020 inflation is likely to average 0.3%, a sharp decline from its March forecast of 1.1% and well below the 'close to but below 2% "price stability" target it sets for itself. 2021 inflation was forecast at 1.3%.
The euro jumped to a multi-month high of 1.1240 against the U.S. dollar, while European stocks trimmed earlier declines to trade in positive territory shortly after the decision.
“While it is no surprise to see interest rates left untouched, we were expecting less of an increase in the pandemic bond buying programme given economies across Europe are beginning to reopen and the worst of the crisis appears to be in the rear-view mirror," said Hinesh Patel, portfolio manager at Quilter Investors.
"Needless to say this should be another positive for risk assets, at a time when equities in particular have already rallied strongly from their lows in March," he added.