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Euro slips, bonds gain as ECB delivers stimulus package, including QE

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Euro slips, bonds gain as ECB delivers stimulus package, including QE

The European Central Bank lowered its rate on the deposit facility, while keeping other rates unchanged, and announced that it will restart bond purchases, at a monthly pace of €20 billion.

The interest rate on the deposit facility was cut 10 basis points to negative 0.50%. Meanwhile, the interest rates on the main refinancing operations and the marginal lending facility were left unchanged at zero percent and 0.25%, respectively.

The bank will relaunch its asset repurchase program on Nov. 1, which is expected to run "for as long as necessary" and end "shortly" before it begins hiking interest rates.

Reinvestments of the principal payments from maturing securities purchased under the program will continue for as long as necessary to maintain favorable liquidity conditions.

The central bank also removed reference to keeping rates at present or lower levels at least through the first half of 2020, saying it does not expect a change until the inflation outlook converges to the central bank's target of close to, but below, 2%.

In addition, it introduced a two-tier system for reserve remuneration, exempting part of banks' excess liquidity holdings from the negative deposit facility rate.

The ECB's Governing Council also changed the modalities of the new series of quarterly targeted longer-term refinancing operations, or TLTRO III, in a bid to support its accommodative monetary policy stance. The operations' maturity is set to be extended to three years from two years.

The interest rate on every operation will be set at the level of the average rate applied in Eurosystem's main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending surpasses a benchmark, the applicable rate will be reduced and could be as low as the average interest rate on the deposit facility prevailing over the life of the operation.

Yields on the 10-year German Bunds dropped 7 basis points to negative 0.628% as of 9:09 a.m. ET. Ten-year yields on French and Belgian bonds shed nearly 9 basis points each, and those on the Netherlands' government bonds were down 7 basis points.

Spanish bond yields lost nearly 13 basis points.

The euro lost 0.5% versus the dollar around the same time.

The central bank was widely expected to roll out a stimulus package in a bid to revive inflation, though some ECB policymakers had signaled opposition to the resumption of bond purchases.