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European Union flags flutter outside the European Central Bank headquarters in Frankfurt, Germany.Kai Pfaffenbach/Reuters

The European Central Bank kept policy unchanged as expected on Thursday, staying on track to end bond purchases this year and raise interest rates next autumn, even as protectionist moves around the globe drag on growth.

With inflation rebounding and growth levelling off at a relatively healthy pace, the ECB has been gently removing stimulus for months in the belief that a range of risks from protectionism to emerging market turbulence and Brexit will not be enough to derail a growth run now into its sixth year.

Making only a nuanced tweak to its policy stance, the ECB said it would halve its monthly bond purchases to €15-billion ($22.78-billion) from October, firming up its previous language, which said only that such a move was anticipated.

But it maintained its stance that bond buys are expected to end by the close of the year and that interest rates will stay unchanged at least through next summer. Some analysts say the unusually long horizon for that policy guidance will leave the bank on autopilot for months.

ECB President Mario Draghi announced at his news conference small cuts to the Bank’s growth forecasts for this year and next, citing weaker foreign demand, and noted external risks such as rising protectionism and financial market volatility.

But he added: “The risks surrounding the euro area growth outlook can still be assessed as broadly balanced.”

For markets, the policy meeting proved largely uneventful, with the euro hovering around US$1.1620.

“When does a central banker know that he [or she] has done an immaculate job? When quantitative easing is brought to an end and financial markets could hardly care less,” commented Carsten Brzeski, chief economist at ING Germany.

The bank now expects growth of 2 per cent this year and 1.8 per cent next, slightly lower than its previous forecast of 2.1 per cent and 1.9 per cent.

The Bank maintained its forecast of annual inflation at 1.7 per cent through to 2020, with Mr. Draghi insisting that was consistent with the bank’s target of near 2 per cent.

The ECB has kept rates in negative territory for years and bought more than €2.5-trillion of debt, depressing borrowing costs and driving up growth following a double-dip recession that nearly tore the 19-member currency bloc apart.

While the scheme has produced results, inflation is rising more slowly than once hoped and much of the ECB’s firepower is exhausted, leaving it with few tools to fight the next downturn.

With Thursday’s decision, the ECB’s deposit rate, currently its primary interest rate tool, will remain at -0.40 per cent, while the main refinancing rate – which determines the cost of credit in the economy – will remain at zero.

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