ECB cuts key rate, to restart bond purchases

FRANKFURT - The European Central Bank approved a fresh stimulus package as expected on Thursday, cutting interest rates and approving a new round of bond purchases to prop up euro zone growth and halt a worrisome drop in inflation expectations.

The ECB cut its deposit rate to a record low -0.5 percent from -0.4 percent and will restart bond purchases of 20 billion euros a month from November, it said in a statement.

With inflation falling, Germany skirting a recession and a global trade war sapping domestic confidence, the ECB had all but promised more support to the economy and the only question was how extensive stimulus would be.

"The Governing Council expects (bond purchases) to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates," the ECB said in a regular policy statement.

The ECB also eased the terms of its long term loans to banks and introduced a tiered deposit rate to help banks.

Economists polled by Reuters expected a 10 basis point deposit rate cut, a tiered deposit rate to support banks, bond buys of 30 billion euros a month from October and a fresh promise to keep rates low for longer.

"The Governing Council now 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 percent within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics," the ECB said.

Attention now turns to ECB President Mario Draghi's 1230 GMT news conference, at which he will also present fresh growth and inflation projections.

Reuters