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ECB drops pledge to increase bond buys, if needed

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03/08/2018 | 02:06pm CEST

FRANKFURT (Reuters) - The European Central Bank reaffirmed its ultra-easy policy stance on Thursday but dropped a promise to increase bond purchases if needed, taking another small step in dialing back its extraordinary stimulus measures.

Having bought bonds for three years to depress borrowing costs, the ECB said it could still extend the purchases beyond September if needed but omitted a long-standing reference to increasing them -- a largely symbolic step that is seen as a precursor to a broader policy revision later this year.

"The Governing Council confirms that the net asset purchases, at the current monthly pace of 30 billion euros, are intended to run until the end of September 2018, or beyond, if necessary," the ECB said in a statement.

While the decision is broadly in line with expectations, some investors expected the bank to drop this so-called easing bias only later, even if markets have already priced out any chance of bigger bond purchases.

Attention now turns to ECB President Mario Draghi's 1330 GMT news conference, where he will unveil fresh macroeconomic projections and face questions about the euro's rise and market volatility.

He could also signal that work has begun on revising the ECB's policy guidance, as previously flagged by policymakers, a step that could cut the ECB's singular focus on asset purchases and instead broaden the emphasis to include all instruments.

With Thursday's decision, the ECB's rate on bank overnight deposits, currently its primary interest rate tool, remains at -0.40 percent.

The main refinancing rate, which determines the cost of credit in the economy, is unchanged at 0.00 percent while the rate on the marginal lending facility -- the emergency overnight borrowing rate for banks -- remains at 0.25 percent.

Bond purchases will also continue at 30 billion euros per month at least until September.

"The Governing Council expects the key ECB interest rates to remain at their present levels for an extended period of time, and well past the horizon of the net asset purchases," the ECB added, repeating its longstanding guidance on rates.

(Reporting by Balazs Koranyi; Editing by Catherine Evans)

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