ECB Plans to Reduce QE Purchases to 30 Billion Euros a Month (Euro Tanks!)

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The Euro tanked this morning as ECB’s Draghi kept rates the same, but announced plans to taper the central banks’ asset purchases.

(Bloomberg) — The European Central Bank will reduce its monthly bond purchases next year, a step toward ending a program that has already spent more than 2 trillion euros ($2.4 trillion) trying to revive euro-area inflation.

Policy makers agreed to scale back buying to 30 billion euros a month starting in January and continue for nine months until the end of September, a decision that was in line with economists’ estimates. The ECB also maintained its pledge to continue buying beyond the current deadline and/or increase the size of its monthly asset purchases if needed.

The euro dropped after the announcement, trading down 0.4 percent at $1.1763 at 1:56 p.m. Frankfurt time.

The decision marks a watershed moment for Mario Draghi, who heads into the final two years of his ECB presidency after a tenure spent easing policy to contain the fallout from the region’s debt crisis and stave off deflation. The 19-nation bloc is on track for its fastest expansion in a decade, and the central bank is betting that inflation is finally on the verge of picking up.

The reaction? The Euro tanked.

The ECB’s rates remained the same, with their Main Refinancing Rate at 0% and their Deposit Facility Rate at -0.40%. The ECB balance sheet keeps growing rapidly.

Here is the implied future paths of the ECB announcement rate.