NAPLES, Italy (AFP) – Persistent and dangerously low eurozone inflation will keep the heat on the European Central Bank headed by Mario Draghi to inject more stimulus at its monthly policy meeting on Thursday, analysts said.
But despite this pressure, and in view of a surprise rate cut last month, the ECB is not expected to announce any new policy moves.
This meeting is being held in Naples, Italy, instead of at the bank’s headquarters in Frankfurt as usual.
Draghi is Italian and it was largely as governor of the central bank there that he earned the name “Super Mario” for his negotiating and communication skills, a reputation borne out by a number of big and controversial policy initiatives by the ECB under his presidency.
“There is little prospect of any major new measures,” said Ben May of Oxford Economics.
However, financial markets are looking for more details from ECB president Mario Draghi about the bank’s contested liquidity programmes.
They are waiting particularly for information about its plans to buy asset-backed securities (ABS) and covered bonds as a way of kick-starting lending in the 18 countries that share the euro.
And some ECB watchers will also be listening out for any hints that the bank may embark on a much wider programme of so-called quantitative easing (QE) or the purchase of unlimited amounts of bonds, a policy already practised by other central banks such as the US Federal Reserve and the Bank of England.
According to new data this week, eurozone inflation slowed to 0.3 per cent, the lowest level for nearly five years, in September.
That, together with weak eurozone manufacturing data on Wednesday, has turned up the pressure on the ECB to take even more action to avert the threat of deflation – a vicious downward spiral of falling prices and demand which central banks have great difficulty reversing.
“No matter what the ECB tries, the eurozone economy is not really reacting and instead continues to flirt with stagnation,” said ING DiBa economist Carsten Brzeski.