ECB to Scale Back Bond Purchases

The euro dropped after the announcement, trading down 0.5 percent at $1.1758 at 2:11 p.m. Frankfurt time, and European government bonds jumped.

The decision marks a watershed moment for Mario Draghi, who heads into the final two years of his ECB presidency after a tenure spent easing policy to contain the fallout from the region's debt crisis and stave off deflation. The 19-nation bloc is on track for its fastest expansion in a decade, and the central bank is betting that inflation is finally on the verge of picking up.

Reinvestment Plans

Draghi has repeatedly said that "we aren't there yet" on inflation, which was just 1.5 percent last month and which the central bank predicts won't return to its goal of just under 2 percent before late 2019 at the earliest. 

The Governing Council reiterated that it will continue to spend 60 billion euros a month on debt until the end of December. Officials kept the main refinancing rate at zero percent, the deposit rate at minus 0.4 percent and the marginal rate at 0.25 percent. They repeated a pledge that borrowing costs will stay at present levels until well past the end of net asset purchases.

The ECB said the proceeds of maturing debt will be reinvested for an "extended period of time after the end of its net asset purchases, and in any case for as long as necessary." It also stressed that lending to banks will be conducted at a fixed interest rate and with full allotment for as long as needed.

The attention now turns to the news conference, where Draghi will face questions about his reasoning for the decision. The issue of precisely when the program — a key demand of some governors — remains unresolved. Another core factor is the availability of debt under the current QE rules. Some policy makers judge that the central bank has room to buy little more than 200 billion euros of bonds after December before it runs into shortages.