FRANKFURT (Reuters) - The European Central Bank left policy unchanged on Thursday as widely expected, holding fire before a set of crucial decisions in December on ending pandemic emergency stimulus and returning policy to a more normal setting.
Confirming its policy stance, the ECB will continue to buy bonds at a "moderately lower" pace this quarter than in the preceding six months, aiming to keep down borrowing costs while the economy rebounds from the pandemic.
It also maintained its guidance to keep interest rates exceptionally low for years to come, a stipulation increasingly challenged by financial investors, who are doubting the ECB's narrative on inflation.
The guidance calls for steady or lower rates until inflation rises back to the ECB's 2% target by the middle of its projection horizon and holds there on a durable basis.
That is not likely to happen for years to come according to the ECB's projections, yet markets now expect a rate hike before the end of 2022 as inflation is seen settling higher after its current spike than policymakers predict.
Consumer price growth is expected to hit 4% this year before a steady decline next year but the ECB and financial investors differ on how quickly and how far price growth will sink back over the coming years.
Speaking to reporters at a 1230 GMT news conference, ECB President Christine Lagarde is expected reaffirm the bank's long-standing narrative that inflation over the medium term will remain below target, so that conditions for a rate rise next year will not be met.
She is also likely to argue that wage growth, a necessary component of durable inflation, is so muted that the risk of durably higher inflation remains low.
Lagarde is nevertheless expected to acknowledge that inflation pressures are rising and that risks for price growth are skewed towards the upside.
In December, the ECB is expected to decide on winding down pandemic-era emergency stimulus and likely replacing the lost support with more traditional measures.
(Reporting by Balazs Koranyi; Editing by Catherine Evans)