By Todd Buell and Paul Hannon 

FRANKFURT--The European Central Bank decided Thursday to extend its asset-purchase program to the end of 2017 but buy bonds at a reduced monthly rate.

It will maintain its monthly purchase volume at EUR80 billion ($86.2 billion) until March 2017 as planned, but will reduce it to EUR60 billion as of April. It kept all its interest rates unchanged.

Speaking in a news conference, ECB President Mario Draghi said the decision didn't constitute a move to "taper," or gradually phase out the bond-buying program.

"Tapering has not been discussed today," he said. "The presence of the ECB on the markets will be there for a long time."

The extension of the program marks a further divergence between the world's two most important central banks. Most economists expect the U.S. Federal Reserve to raise short-term interest rates when its policy makers meet Dec. 15 and 16.

Mr. Draghi said the governing council had also considered a six-month extension to the bond-buying program at the current monthly rate, but that there was a "very, very broad consensus" in favor of the chosen alternative.

When it launched the program in March 2015, the ECB bought EUR60 billion a month, but that was increased in March 2016.

"We basically judged that the outlook of a sustained return to the inflation objective is not very different from the beginning of the program," Mr. Draghi said. "More specifically, the risk of deflation has largely disappeared."

Mr. Draghi also noted that the program could be continued beyond the end of 2017 if policy makers deem that necessary to meet their inflation target of just under 2%.

"It is, in a sense, open ended," he said.

Changes in asset prices during the news conference appear to indicate that Mr. Draghi succeeded in persuading investors that the reduction in the monthly flow of bond buys doesn't herald the program's end.

The price of shares and bonds fell sharply on the initial announcement of the reduction. But investors concluded that the net effect was continued central bank support, and markets reversed much of their original moves.

With the eurozone entering a year of key elections, and antiestablishment parties on the rise, investors had expected the ECB to take a cautious approach to its bond-buying program and maintain the monthly purchase amount.

"Today was a missed opportunity to provide some sort of support to the market into a very uncertain political calendar in 2017," said Patrick O'Donnell, an investment manager at Aberdeen Asset Management.

However, the ECB did give itself some room to reverse its decision should next year throw up some unpleasant surprises.

"There is a big uncertainty, much of which is political," Mr. Draghi said. "What the central banks can do is keep a steady hand, namely continue with the monetary accommodation that is necessary to meet their objective."

He added that there had been no discussion of a reduction in the scale of the program should the economy perform more strongly than expected.

"We seem to be far away from such high-class problems," he said.

To make the extension possible, the ECB tweaked the rules that govern bond purchases. It can now buy bonds that yield less than its deposit rate, which is set at minus 0.4%. And the remaining maturity of eligible bonds can now be one year rather two.

Justifying the extension, Mr. Draghi said that while the eurozone's "modest" economic recovery is "firming," inflationary pressures remain "subdued." The eurozone's inflation rate has been below the ECB's target of just under 2% for almost four years, and stood at 0.6% in Nov.

The ECB's economists forecast that while inflation will pick up in 2017 and 2018, it will remain below target at 1.7% in 2019.

"We have to persist," said Mr. Draghi, in response to that forecast.

Write to Todd Buell at todd.buell@wsj.com and Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

December 08, 2016 10:38 ET (15:38 GMT)