The ECB's current asset purchase program of 80 billion euros was set to expire at the end of March 2017 and the ECB will now lower the monthly purchases of bonds to 60 billion euros but continue with these purchases until the end of December 2017.
But the ECB, which in March cut its benchmark refinancing rate to zero, added that if the economic outlook becomes unfavorable, "the Governing Council intends to increase the programme in terms of size and/or duration."
To tackle the issue of a paucity of bonds available for purchase, the ECB broadened the maturity range of public sector bonds that it will buy by lowering the remaining maturity to one year from two years, and will buy bonds that have a yield below the ECB's deposit rate of minus 0.40 percent.
ECB President Mario Draghi also confirmed the guidance that the central bank for 19 countries expects to keep its interest rates "at present or lower levels for an extended period of time, and well past the horizon of our net purchases."
In addition to a refi rate of 0.0 percent and the deposit rate of minus 0.40 percent, the ECB's rate on its marginal lending facility was maintained at 0.25 percent.
Draghi said the extension of the asset purchases was aimed at preserving the "very substantial degree of monetary accommodation" to ensure that inflation in the euro area reaches the ECB's target of below, but close to 2.0 percent.
"This calibration reflects the moderate but firming recovery of the euro area economy and still subdued underlying inflationary pressures," Draghi said, confirming that the ECB "will act by using all the instruments available within its mandate" to achieve its inflation objective.
Inflation in the euro area rose to 0.6 percent in November from 0.5 percent in October but Draghi said this was largely due to higher energy prices and there "are no signs yet of a convincing upward trend in underlying inflation."
Inflation is expected to pick up "significantly" at the turn of the year due to the comparison with last year and then rise further in the next two years, Draghi said.
In an update to its staff forecast, the ECB forecast annual inflation rate of 0.2 percent this year, rising to 1.3 percent in 2017, 1.5 percent in 2018 and 1.7 percent in 2019.
This compares with its previous forecast from September of 0.2 recent this year, 1.2 percent in 2017 and 1.6 percent in 2018.
Draghi said he expected the economic recovery in the euro area to "proceed at a moderate but firming pace," helped by improved corporate profitability, a recovery in investment, sustained gains in employment that is supporting private consumption, and a "somewhat stronger global recovery."
"However, economic growth in the euro area is expected to be dampened by a sluggish pace of implantation of structural reforms and remaining balance sheet adjustments in a number of sectors," he added.
Gross Domestic Product in the euro area grew by an annual rate of 1.7 percent in the third quarter of this year, the same rate as in the two previous quarters, and ECB largely maintained its outlook.
For this year GDP is seen rising by 1.7 percent, unchanged from September, while the forecast for 2017 was raised to 1.7 percent from 1.6 percent. For 2018 the ECB expects unchanged growth of 1.6 percent and the same rate for 2019.
"The risks surrounding the euro area growth outlook remain tilted to the downside," Draghi said.
The euro, which fell sharply from May 2014 to March 2015, has been relatively stable since then though it has dropped in the last month and fell further in response to the ECB's decision.
The euro was trading at 1.065 to the U.S. dollar today, down from 1.08 yesterday, little changed since the start of this year.
The European Central Bank issued the following statement:
"At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council decided to continue its purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017. From April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. If, in the meantime, the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment of the path of inflation, the Governing Council intends to increase the programme in terms of size and/or duration. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP.