ECB slows its bond purchases as inflation surges

The European Central Bank kept its monetary policy unchanged on Thursday but opted to slow down the pace of net asset purchases under its pandemic emergency purchase program.

The Governing Council voted to maintain the interest rate on the ECB's main refinancing operations at 0%, on the marginal lending facility at 0.25% and on the deposit facility at -0.5%.

"Based on a joint assessment of financing conditions and the inflation outlook, the

Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the (PEPP) than in the previous two quarters," the ECB said in a statement.

Markets had been eagerly awaiting the Frankfurt institution's latest policy decision for signs of an imminent unwinding of pandemic-era stimulus, amid surging inflation and strong economic growth.

The euro gained 0.2% against the dollar following the decision to trade at around $1.1837, while European stocks pared earlier losses.

The ECB reiterated that interest rates will remain at their present or lower levels until inflation is seen reaching 2% "well ahead of the end of its projection horizon and durably for the rest of the projection horizon," and until the ECB judges that inflation will stabilize at 2% over the medium term.

"This may also imply a transitory period in which inflation is moderately above target," the ECB added.

Euro zone inflation notched a decade high of 3% in August and GDP across the 19-member common currency bloc climbed 2% in the second quarter, exceeding economist expectations.

The central bank's Pandemic Emergency Purchase Programme was implemented in March 2020 to support the euro zone economy through the Covid19 crisis, and is due to end in March 2022 at a potential total value of 1.85 trillion euros ($2.19 trillion). ECB policymakers have sounded contrasting tones as to the danger of inflation becoming persistent rather than "transitory," as has been the general consensus among central banks around the world.