ECB Keeps Key Rates Unchanged, Defying Market Forecasts, But Pledges €120 Billion in New QE Purchases

The ECB will add €120 billion in asset purchases to its dormant QE program, alongside targeted lending support for regional banks, as the coronavirus pandemic hammers regional growth prospects.

The European Central Bank made no changes to its three key interest rates Thursday, defying market projections, but pledged instead to re-open its dormant quantitative easing program to support the economy as it grapples with the coronavirus pandemic.

The ECB said it will offer a "temporary envelope" of asset purchases, up to €120 billion, and added to target lending programs, known as TLTROS, that rewards regional banks for lending cash into the real economy. It also gave banks extra wiggle room on capital buffers they have been fortifying since the global financial crisis, freeing-up more cash for struggling lenders.

"The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively," the ECB said in a statement. "The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics."

The euro jumped 40 pips against the U.S. dollar to 1.1279 immediately following the ECB rate decision, before easing to 1.1226 while benchmark 10-year bund yields were pegged near record lows of -0.765%.

ECB President Christine Lagarde will take questions from the media at 9:30 am Eastern time.