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ECB cuts key interest rate and plans to resume bond purchases

UNITED STATES, WASHINGTON (OBSERVATORY) — The European Central Bank approved a new stimulus package as expected on Thursday, cutting interest rates and approving a new round of bond purchases to boost euro zone economic growth and stem a worrying fall in inflation expectations.

The bank said in a statement it had cut its deposit rate to a record low of -0.5 percent from -0.4 percent and would resume buying bonds worth 20 billion euros a month from November.

“The Board of Governors expects (bond purchases) to continue as long as necessary to enhance the impact of interest rate easing and to end shortly before the Council starts raising the ECB’s key interest rates,” the ECB said in a periodic policy statement.

The ECB also relaxed its terms for long-term bank loans and applied a gradual deposit rate to help banks.

Economists polled by Reuters had expected a 10 basis point cut in the deposit rate, a gradual deposit rate to support banks, the purchase of 30 billion euros of bonds a month from October, and a new pledge to keep interest rates low for longer.

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