The European Central Bank is widely expected to maintain status quo on conclusion of its policy session on Thursday as the recent developments, some slightly dismal, are too insignificant to warrant a change of course.
Meanwhile, ECB President Mario Draghi is likely to adopt a slightly more dovish tone as core inflation is yet to show any sharp pick-up that the bank expected earlier.
That said, Draghi is widely expected to voice determination in carrying out the bank’s plan to end its EUR 2.5 trillion asset purchase plan in December.
Economists expect the central bank to hike interest rates in the second half of next year.
The main refi rate is currently at a record low zero percent and the deposit rate at -0.40 percent. The marginal lending facility rate is 0.25 percent.
The policy decision announcement is due at 07.45 am ET on Thursday following the meeting of the Governing Council in Frankfurt.
“The ECB seems willing to look through some market volatility and is determined to end QE by the end of the year,” ING economist Carsten Brzeski said.
“Looking beyond the end of QE, the ECB could show more flexibility and willingness to react to slowing growth or the absence of an acceleration in core inflation either by postponing the first rate hike far beyond the summer of 2019 and/or by using the reinvestment period to strengthen forward-guidance.”
Draghi told European lawmakers late September that the bank expects a “vigorous pick-up” in the underlying inflation in the coming months.
Latest data from Eurostat, however, showed that core inflation that excludes energy, food, alcohol and tobacco, was unchanged at 0.9 percent in September after a downward revision to August’s figure.
Recent data have been mixed suggesting some loss of momentum in the euro area economic activity.
Turbulence in global stock markets, especially in emerging economies, trade tensions, high oil prices and the drawn-out Brexit discussions also add to the downside risks to the Eurozone economic outlook.
In September, the ECB Staff trimmed the growth projections for this year and next to 2 percent and 1.8 percent, respectively.
But none of these have materialized, ensuring that the solid domestic demand, which at the present is the linchpin for euro area growth, remains intact.
Eurozone private sector expanded at the weakest pace in over two years in October, the latest purchasing managers’ survey by IHS Markit showed on Wednesday, as an export-led slowdown continued to broaden-out to the service sector amid weak manufacturing performance.
The ECB President is set to hold his customary post-decision press conference at 08.30 am ET, when he is expected to face several questions regarding the stand-off between his home country Italy and the European Union regarding the former’s budget plans.
“As this recent turmoil is a battle between Italy vs Brussels and Italy vs the market, the ECB will only voice its awareness of the situation and refer to the already established procedures should the ECB be involved,” Danske Bank analysts said. “Therefore, we expect the ECB will stay side-lined for now.”