The European Central Bank is expected to leave interest rates on hold at an historic low of 0.5 per cent Thursday, despite signs of renewed tensions across the eurozone.
Analysts also expect ECB chief Mario Draghi to rule out pushing for an early exit from the loose monetary policy aimed at reviving the economy.
“Draghi will not deliver a surprise rate cut on Thursday,” said Danske Bank economist Frank Oland Hansen.
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“Draghi will instead try to talk rates down,” he said. “It seems almost certain that he will say that the exit remains distant.” The Washington-based US Federal Reserve signalled last month plans to begin scaling back its stimulus measures if the world’s biggest economy continued to show signs of gaining momentum.
But unlike the United States, the eurozone economy remains fragile. The ECB expects a contraction of 0.6 per cent this year and growth of 1.1 per cent in 2014.
Economic confidence in the 17-member currency climbed for the second consecutive month to a more-than-expected 91.3 points in June, the European Commission’s closely watched Economic Sentiment Indicator showed.
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This is likely to help Draghi head off any calls for another immediate cut in interest rates, despite consumer prices remaining within the ECB’s annual target range of close to but below 2 per cent and an unemployment rate of more than 12 per cent, a record high.
But a deepening political crisis in Portugal and worries about Greece meeting the conditions of its bailout has prompted market tensions.
Some analysts believe that Draghi might use his press conference to state conventional and unconventional monetary policy instruments available to the bank if the euro zone economy continues to falter.
This could include unveiling a policy of so-called forward guidance, which is when central banks seek to guide markets on future interest rates trends.