The European Central Bank (ECB) said on Thursday its governing council continues to judge that favourable financing conditions can be maintained with “a moderately lower pace” of bond-buying under its €1.85 trillion pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year.

The ECB plans to reduce monthly bond purchases from the €75 billion carried out between March and September of this year.

The central bank also vowed to keep the PEPP program running “until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.”

The ECB also kept its deposit rate unchanged at -0.5%.

As other central banks signal tighter policy amid rising prices, ECB President Christine Lagarde said it had done much soul-searching over its stance but concluded that inflation was still temporary.

“We talked about inflation, inflation, inflation …” said Lagarde.

“While inflation will take longer to decline than previously expected, we expect these factors to ease in the course of next year …

“We continue to see inflation in the medium term below our 2% target.”

Many investors will now anxiously await the ECB’s December meeting, when the future of its emergency stimulus will be reassessed.

Pietro Baffico, European Economist at Edinburgh-based asset management giant Abrdn, said: “Unsurprisingly, the ECB kept its favourable financing conditions framework unchanged at today’s meeting.

“With staff forecasts only due in December, this buys some time for the ECB to assess the inflationary developments before taking any decisions.

“While the ECB is unlikely to deviate from its current narrative that recent price spikes are temporary, inflationary pressure risk is eroding investors’ confidence, who are now anxiously looking forward to the December meeting, when the future of the QE programs will also be reassessed.

“We continue to think that the ECB will remain a dovish standout among the major central banks, which should help to support Eurozone asset prices.”

Hinesh Patel, portfolio manager at Quilter Investors, said: “Despite the inflation alarm bells ringing all around, including the highest inflation in Spain for 30 years, the ECB remains steadfast and refuses to blink on rates.

“While the ECB did announce a tapering in bond purchases at the last meeting in September, overall the message remains relatively dovish.

“Quite rightly they are looking through the current bout of price increases towards the easing of inflation next year.

“Once the reopening effects and multiple one-off factors including supply crunches and energy price hikes have fed through the system, we should see inflation roll-off to a certain extent, particularly given the comparison period will be a time of unusually high inflation.

“The policy baton has been handed from the monetary authorities to governments, who now largely hold the cards when it comes to ensuring a strong economic recovery.

“In the US in particular, the direction of fiscal policy and infrastructure policy from the Biden administration is going to be paramount to determining the eventual strength of the economic recovery.”

The ECB said: “The governing council will purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation.

“In addition, the flexibility of purchases over time, across asset classes and among jurisdictions will continue to support the smooth transmission of monetary policy.

“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full.

“Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.

“The Governing Council will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023.

“In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.”