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 The ECB is widely expected to leave interest rates unchanged at its
final policy meeting of this year, after surprising markets last
month with a cut in its main rate to a record low of 0.25 percent.
With governments slow to respond to the euro zone crisis, the ECB
has played a major role in bringing the bloc back from the brink of
break-up but now faces resistance to further policy action from its
German-led hawkish minority.
November's cut followed a fall in euro zone inflation to 0.7 percent
in October — far below the ECB's target of just under 2 percent. It
has since picked up to 0.9 percent and unemployment fell in October,
offering the ECB a reprieve.
"Mario Draghi is action man," Berenberg bank economist Christian
Schulz said of the ECB president. "If he sees a need for action,
then he acts ... but the opportunity to do more simply isn't there
because the data has improved."
At his 1330 GMT (8:30 a.m. EST) news conference, Draghi will present
updated projections from the ECB's staff, which will include their
first forecasts for 2015.
The new estimates will give markets insight into the ECB's view on
inflation over the medium term, the horizon over which it aims to
deliver price stability in line with its target.
Should the new projections point to inflation still clearly
undershooting the ECB's target in 2015 — analysts expect a forecast
of 1.3 or 1.4 percent — expectations will grow that the bank will
take fresh action early next year.
Schulz expected the new forecasts to show inflation remaining below
the ECB's target in 2015.
"That will raise questions next time Draghi goes to the European
Parliament as to why they are not doing more to achieve their own
target, and could raise the pressure on the ECB to do more over the
coming months," he said.
However, the ECB's hawks would resist further easing.
The ECB is already running up against opposition in Germany, where
Markus Soeder, the finance minister of the southern state of
Bavaria, said on Saturday the bank's low interest rate policy
threatened financial order in the euro zone and caused a "stealthy
expropriation" of German savings.
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POLICY OPTIONS
In the run-up to Thursday's meeting, several senior policymakers
have flagged the ECB's readiness to ease policy further if needed,
while at the same time playing down the prospect of immediate
action.
Peter Praet, the bank's chief economist who begins the rate meetings
with a policy recommendation, last month put the possibility of the
ECB embarking on asset buys — or quantitative easing — on the
agenda.
However, another senior ECB policymaker, Benoit Coeure, said last
week the ECB does not need to make large-scale asset purchases like
the U.S. Federal Reserve given the euro zone's inflation outlook.
The bank's vice-president, Vitor Constancio, has also said the ECB
would only cut the deposit rate it pays banks for holding their
money overnight — now at zero — into negative territory in an
extreme situation.
Constancio dampened speculation the ECB was actively preparing to
inject more funds into the financial system, though a Reuters poll
last week suggested the ECB will offer banks a new batch of
long-term loans early next year.
RBS economist Richard Barwell said the ECB could boost markets'
confidence in the central bank's readiness to take further action if
it presents a more specific plan of action.
"They will say all options are on the table, but I would prefer it
if they were more specific about which options they think they would
use — and how and when," he said.
[By Paul Carrel © 2013 Thomson Reuters. All
rights reserved.] (Editing by Ruth Pitchford)
Copyright 2013 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
